Foreign tariffs hit home: 15 months into the US-Chinese trade war, Steamboat outdoor companies are paying the consequences
STEAMBOAT SPRINGS — Over the past two decades that Bill Gamber has run the local outdoor company Big Agnes, he did not think much about tariffs — the tax a government levies on various imports and exports.
That changed about a year ago after tensions between the U.S. and China plunged both countries into a trade war. Now in its 15th month, the dispute has led the world’s two largest economies to impose millions of dollars in tariffs on one another. The list of products hit with new taxes has grown to include a wide array of thousands of goods ranging from furniture to vegetables to perfumes.
Gamber’s company faces hundreds of thousands of dollars in price hikes due to the tariffs, and other Steamboat-based outdoor companies are grappling with similar financial blows.
Assessing the damage
On July 6, 2018, the White House imposed the first tranche of new tariffs, imposing a 25% levy on $34 billion worth of Chinese goods. This came after President Donald Trump pledged to address “unfair” trade practices with the country and allegations China was stealing American intellectual property. Beijing retaliated with its own tariffs on about $34 billion worth of U.S. products.
In a trade war, countries impose tariffs as a kind of economic firepower. But as in actual warfare, both sides suffer casualties, and friendly fire is almost inevitable.
This year, Big Agnes has paid more than $500,000 in extra tariffs, according to Gamber. Next year, if the U.S. and China cannot reach a deal, he said his company could pay an extra $2 million to import all the goods it needs.
Amid the debacle, Gamber has become an expert on tariff rates. He can list them from memory — both the old rates that remained largely unchanged for decades and the new, higher rates. Take the cost to import Big Agnes duffel bags. In previous years, Gamber’s company paid a 17% rate. Since the start of 2019, after the White House raised tariffs by almost a quarter of the previous percentage, the rate has risen to almost 43%, according to Gamber.
The extent of future damage depends on whether the White House follows through on its plan to impose a further 15% tariff on almost all remaining Chinese imports including laptops, smartphone, footwear and clothing.
Trump has backed away from tariffs in the past, sometimes just days before they were scheduled to take effect. On Oct. 11, he delayed rate hikes on more than $250 billion worth of Chinese goods after announcing he reached a “very substantial phase one deal” with Beijing to stop the trade war.
The president’s rhetoric on the dispute, most of which surfaces through his Twitter posts, has real sway on local businesses.
“When Trump sends a tweet, it can really cost us a lot,” Gamber said.
It also impacts the larger national economy, particularly the health of the stock market.
After reaching his “phase one deal,” Trump tweeted there were “warmer feelings” in U.S.-China trade talks. By that evening, when the stock market closed for the day, the S&P 500 snapped out of a three-week losing streak. Around the same time, consumer sentiment across the country improved, according to a survey from the University of Michigan.
The fear (and cost) of the unknown
The Trump Administration’s contradictions in the trade war create uncertainty, not only for Americans like Gamber but for virtually every economy in the world that in some way does business with the U.S. or China.
Christine Lagard, who will soon head the European Central Bank, discussed how such uncertainty can become a contagion to global economic growth during a “60 Minutes” interview that aired Sunday, Oct. 20.
“It’s the unknown which is hurting, because you can’t adjust to the unknown,” she told CBS News’ John Dickerson. “So what do you do? You build buffers. You build savings. You wonder what comes next. That’s not propitious to economic development.”
This week, experts at the International Monetary Fund estimated the U.S.-China dispute will slow global growth to 3% in 2019, the slowest pace in a decade.
Similar to larger national economies, small businesses like Big Agnes rely on the predictability of financial projections to plan for the future. When a single tweet from the president can determine whether or not millions of dollars of tariffs take effect, Gamber no longer knows how hard his company will be hit, or how to plan for the fallout.
Other Steamboat-based outdoor companies have suffered price increases from the trade war, even if they do not work directly with Chinese companies.
Moots Cycles, a local bicycle manufacturer, gets most of its materials, namely titanium for bike frames, from the U.S., according to inventory manager Elyse Tanner.
But many of the raw materials that go into making tires, pedals and other parts at one point go through a Chinese factory. Now it is nearly impossible to do anything without using a product that has a “Made in China” stamp on it. The companies that provide Moots with these materials, even those based in the U.S., have raised the cost of these goods in reaction to the trade war.
“They are getting hit with fees and passing it onto us,” Tanner said.
John Weinman, owner of the Classic Crank Bicycle Shoppe, has seen a similar trickle-down effect among his suppliers. He expects those companies, which sell him the steel, tires and other equipment he uses to build vintage bikes, to face a 25% increase in costs by next year.
While he hopes those larger wholesale companies will not pass the cost onto him, Weinman is bracing for the worst.
“I’ve started telling people to be prepared to see significant increases,” he said.
Looking for solutions
As goods from China get more expensive, some companies are looking elsewhere to source their products.
In the future, Big Agnes will make all of its furniture line in South Korea, according to Gamber. But for other, more specialized products, China remains one of the only countries with the manufacturing infrastructure to meet demand.
“There is hardly a supply chain outside of China to make sleeping bags,” he said.
Moving factories elsewhere would jeopardize the quality and innovation of products, according to Gamber.
His company also has long-lasting partnerships in the Asian country. Some of his suppliers have manufactured products for Big Agnes ever since its founding 20 years ago. When representatives from these Chinese companies visit Steamboat, Gamber often has dinner with them or shares a few runs at Steamboat Resort.
“It’s not like it’s this cold, dark factory that you don’t have a relationship with,” Gamber said. “We’ve developed some real friendships.”
For now, none of the Steamboat companies interviewed plan to raise their prices to make up for any lost revenue. As Gamber explained, fluctuating costs can cause just as much anxiety for consumers as for suppliers, and he does not want to lose customers. He and his staff are trying to be as savvy as possible to keep the consequences of the tariffs at bay.
Good news may be on the horizon.
After reaching the “phase one deal” with China on Oct. 11, Trump told reporters at the White House, “There was a lot of friction between the U.S. and China and now it’s a lovefest.” Many see that as a sign he may cancel the next tariff hike scheduled for Dec. 15.
Gamber just hopes the love can last.
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