A worker produces bicycle rims that will be exported to foreign markets in a plant in Tianmushan, East China's Zhejiang Province, in June 2018. Photo: IC

A worker assembles bicycles at a production line in Lianyungang, East China's Jiangsu Province, in June 2018. Photo: IC

 



For US bicycle companies, China is almost everything. Whatever they need - bicycles, components, or safety accessories - can be manufactured and sourced from China on a large scale, at competitive prices and with great quality.

However, additional tariffs levied by the US on Chinese imports, including those important to the bicycle business, are forcing US companies to make difficult decisions amid the ongoing trade disputes between the world's top two economies: continue importing from China or find alternative sources.

Either would mean higher costs and further uncertainty for the bicycle industry, as China, a critical part of the global supply chain, represents the best source to provide for all their requirements and is expected to stay that way for a long time, US bicycle business owners and insiders said.



Tariff backlash

"It's like a punch in the gut," said Arnold Kamler, chairman and CEO of Kent International, when asked to describe his feelings toward the additional tariffs on China-made  bicycles and components, both of which his bicycle business relies heavily on.

Last year, the US move to impose an extra 10-percent tariff on 200 billion US dollars worth of Chinese imports raised Kent International's overall costs by 7.5 percent and led to higher prices, and subsequently a decline of about 5 percent in sales that fall.

The US bicycle industry is not alone. The nation's economy as a whole suffered a loss of $7.8 billion in 2018 as a result of the trade disputes with other economies, according to a study published by the US National Bureau of Economic Research, a non-profit research organization.

To make things worse, Washington unilaterally escalated trade tensions with China by raising the additional tariffs from 10 percent to 25 percent this May, leaving Kamler no choice but did not increase  prices again for fear of further sales reduction.

The second wave of tariffs would increase overall retail prices for bicycles by 10-12 percent and contribute to a further decline in sales, Bob Margevicius, who is on the board of directors of the US Bicycle Product Suppliers Association, predicted.

"We are concerned coming into the Christmas and the holiday season that this can hurt business," Kamler said.

The bicycle business that 69-year-old Kamler is running was started by his father in 1958 and could date back to 1907, when his grandfather opened a bicycle shop in New York City.

After weathering various turns in the industry, the family business has made itself one of the nation's largest supplier of imported and home-made bicycles, but the current heavy tariffs levied on key products are a new experience for the family run business.

"We feel it's unfair  on us and on many other companies," said Kamler, who is completely against protectionist measures. "While there are disputes that need to be resolved between our countries on trade, I'm wondering why our company is the one having to pay the price for this."

What makes him even more frustrated is that those tariffs are standing in the way of an expansion plan to increase annual production from 350,000 to 1 million, including electric bicycles, at his factory in Manning, South Carolina in the next few years.

"But any plans for that kind of expansion are on hold until this tariff issue settles," he said.

Manufacturing won't return

Detroit Bikes, a bicycle company founded by Zakary Pashak after he moved  to Detroit in 2011, is said to be the only bicycle frame manufacturer in the US and one of the few that has an assembly line, which means he suffers less from the tariffs.

"It's harder on my competitors. So it's worse for them than it is for me," he said.

Pashak's situation is relatively better because his company, unlike most in the US bicycle industry, does not import bicycles from China. Although he is not worried about the tariffs on  bicycles, now as high as 36 percent, he has to bear the extra cost as long as he is importing Chinese made parts, including rims, spokes, and tires.

His factory is in the west end of Detroit, the largest city in Michigan and was once an industrial hub in the US. "Motor City," however, filed for bankruptcy in 2013 due to an over-reliance on manufacturing, poor financial management and a shrinking population.

Thankfully, Detroit, boosted by development within the greater downtown area in recent years, has shown signs of recovery and attracted more entrepreneurs like Pashak. At that time, he was aware that opening a factory was not easy because the business of bicycle-making had vanished for quite some time in the United States.

"I couldn't find anyone who knew how to make bicycles or anyone who could run a production floor. I didn't know how to get any tools," Pashak said.

"So when an industry leaves the country, it's a serious and significant thing. It's very hard to bring it back. And that's what America faces right now," he continued.

Experts have long dismissed claims that the extra tariffs would bring back manufacturing jobs in any substantial way to the United States, where labor and other costs tend to be much higher than in China and other overseas manufacturing hubs.

At the very least, tariffs are not helping create jobs in the US bicycle industry but only forcing businesses to look for alternative sources, for instance, Cambodia, Pashak said.

Best source

Pashak also noted that US businesses impacted by the trade tensions are seeking ways of working around the tariffs, but excluding China is not a feasible option.

"I don't think it's possible to completely remove China from the equation. There's too much there. There's also great engineering. Dealing with Chinese factories is a pleasant experience," Pashak said. "We don't see that type of efficiency in the United States."

China, with an expertise in the bicycle industry, has been the main source of supply for U.S. companies for decades. Cooperation goes far beyond the bicycle industry.

"I find that the Chinese companies have done an excellent job in making capital investments in automation and new technologies and in finding ways to improve the efficiency and the productivity of the products that they're producing, " Margevicius said. "It's very hard for us to look at other places and replicating it."

The number of bicycles that the US imports from China annually has been pretty stable, ranging between 14-15 million bicycles, accounting for over 90 percent of all bicycles imported to that country, according to Margevicius.

But for the first quarter of this year, there was a decline of 450,000 bicycles exported to the US due to higher costs caused by the first wave of extra tariffs on the product.

Industry watchers have said that there has been an initiative among US bicycle companies to seek alternative sources in Southeast Asia and relocate their production line as part of a global supply chain re-adjustment plan, while noting the process requires years to complete and is more challenging for mass market brands to begin.

"It would be very difficult for them to transit and move out. And a lot of that just has to do with the sheer volume. There's a broad availability of labor. The manufacturing cluster is located in China," Margevicius explained.

Margevicius, also executive vice president at Specialized Bicycle Components, a large US importer and a brand selling bicycles worldwide, warned that labor and land costs, which are relatively low in Southeast Asia, would go up and even become an issue if bicycle businesses go there in a swarm.

"We've had a great success working in China with our Chinese partners. We operate with them not just as customer suppliers, said Kamler. 

"We've developed a very close rapport with them," Kamler said.