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Guest editorial: Pure Cycles' president explains how his company is dealing with e-bike tariffs

Published August 24, 2018
Fishman (center) is president and co-founder of Pure Cycles.

By Michael Fishman

Editor's note: Michael Fishman is the co-founder and president of Pure Cycles (originally called Pure Fix), which sells traditional bikes and e-bikes through IBDs and consumer direct. This article has been edited slightly for BRAIN's audience; Fishman's original article is on Medium.com.

I'm writing this to give you a glimpse into how a small-business owner is dealing with the recent increase in tariffs on Chinese-made goods being imported into the U.S. In this post, I will give you a quick background on the tariffs, how the tariffs impact my company, Pure Cycles, what I did to try to stop the tariffs from happening, what the bike industry did to stop the tariffs, and why this is bad for the bike industry and future potential bike riders.

A Bit of Background
Earlier this year in March I was getting nonstop questions from friends/family/employees about increases in tariffs for steel and aluminum coming from China into the United States. I made it my mission to talk with friends within the steel industry, and scoured articles and various sources of bicycle industry news to find out how and if this was ever going to directly impact importing bicycles and bicycle parts for Pure Cycles. Everyone that I spoke with and everything that I read kept coming back to how these tariffs were extraordinarily unpredictable and that the tariffs were not being used to achieve the supposed outcome. A tariff, simply put, is a tax on goods coming into a country. Tariffs in the U.S. are used to make the price of products produced outside the U.S. more expensive so that the U.S.-made option is more attractive.

"I would love to make our bicycles in the U.S. for so many reasons, but as of right now it is just not feasible."

In the case of steel, only 5 percent of the world's steel is produced in the United States as the infrastructure and technology to produce steel efficiently is in other countries. When the 25 percent tariff on steel from China and other countries was made official in June, this was a big hint that our administration was not putting tariffs in place to protect U.S. industry but that they had an ulterior motive, which was starting a tax war to "end an era of unfair trade deals."

This put every U.S. company producing goods in China on notice, and since we produce all our bicycles in China, we started to scramble to look for other manufacturing options. Finding another manufacturer outside of China to manufacture 10-plus different bike models is not an easy task, especially given that over 90 percent of all bicycles sold in the U.S. are imported from China. Even more than the steel industry, the infrastructure and expertise to produce bikes are mostly in China and there is nothing that our small, young bicycle brand in the United States can do about it. I would love to make our bicycles in the U.S. for so many reasons, but as of right now it is just not feasible. I kept telling myself that bicycles were safe from tariff increases since there is no bike manufacturing industry to protect in the U.S., but, sadly, I was wrong.

On June 15, the U.S. Trade Representative first announced a list of 284 categories that made up $16 billion worth of Chinese products that could be hit with a 25 percent tariff and electric bikes were included. Electric bike companies (and any other company affected) were given a couple of weeks to send letters to the USTR and Congress to let them know why their products should be excluded from the tariff, and a decision was expected to be made by the end of the year. I submitted letters on Pure Cycles' behalf, as did most of the other companies in the bike industry. Surprisingly, the USTR quickly came back on August 7 and announced that starting August 23 all electric bikes (and $16 billion of other Chinese products) imported to the US from China would be hit with a 25 percent tariff.

This situation is the definition of unpredictable. Not only were electric bikes included in the 25 percent tariff list, ignoring the fact that these tariffs are not protecting the U.S. electric bike manufacturing industry, we were given less than three weeks to fit these massive cost increases into our business. Overnight, e-bike duties went from 0 percent to 25 percent. To make matters worse, on top of these electric bike tariff increases, the USTR announced on August 1 that the U.S. is considering another 25 percent tariff on $200 billion in Chinese products, and this time the list includes all non-electric bicycles and bicycle parts & accessories. While I, and the rest of the bike industry, are again submitting our letters to the USTR and Congress to have bicycles and bicycle-related product excluded from the tariff increase, I can't imagine that our administration's predictably unpredictable behavior will change. I fully expect in the very near future that all the bicycle-related products that we import from China will have a 25 percent tariff.

Pure Cycles' Impact

So, now where does this leave my business? How should I deal with these 25 percent tariffs to our best-selling new bikes, and how should I deal with the proposed 25 percent tariffs to all our other products? Should I focus on the short-term, leave prices the same, and just weather the storm thinking that these trade wars will end shortly? Or should I believe that these increased tariffs are here to stay and make significant changes to my prices and completely change my marketing material and confuse and upset my customers?

Before answering these questions, I think that is important to explain why we make our bikes in China and China's role in the bike industry.

Although there is a stigma about products made in China, I, and the rest of the bike industry, have found this stigma to be completely unfounded. The fact is, China is making over 90 percent of all bicycles coming into the U.S. for a reason. China has spent years investing in infrastructure and processes that allow them to be some of the best in the world.

The bicycle infrastructure that Chinese companies have built is remarkable. Everything that you need to build a high-quality bicycle is in China  — from bicycle assembly factories to frame manufactures (steel, aluminum, carbon) to painting facilities to component fabricators ... you can find them all close to one another.

While we would love to make all our bicycles in the U.S., the infrastructure to make this a reality is currently not in place. If you are interested in buying a 100 percent American made bicycle you will be looking at spending thousands for a handmade frameset and very expensive components (there is nothing wrong with this but I just want to give you proper perspective). The facilities that are attempting to produce bicycles at scale in the US (like Kent who assembles their bikes for mass-market retailers, like Walmart, in South Carolina) are all just assembly plants who are getting the components sent over from China.

We should not be ashamed that we make our bikes in China. We should celebrate that China is able to produce a high-quality bikes at a fair price, which then enables more people to get on bikes. We should never lose sight that bikes are the most efficient form of transportation, that they are the healthiest form of transportation, and that they are fun! If China is the country that can make the highest quality bike for the best price, then that is where bikes should be produced. It is in every countries' best interest to put their resources in their highest skilled areas, and trade with other countries for the products they can't produce as well domestically. This is a fundamental principle of macroeconomics.

As soon as I got news that electric bikes were included on the list of 284 categories that were subject to a 25 percent tariff I tried to fight against these tariffs. I sent letters to the USTR ( see here), Congressman Adam Schiff  —  the Congressman in my district (see here), and the two California senators  —  Sen. Dianne Feinstein and Sen. Kamala Harris (see here and here). The most interesting part of this process was the responses from Sen. Feinstein and Sen. Harris (see here and here).

 Congressman Schiff did not reply. In summary, both senators said that they understand our concerns, that they disagree with the current raise in tariffs, and that they are also concerned with how the economy will respond. Although my efforts did not lead to anything, I will continue to fight the additional 25 percent proposed tariffs even though we believe the same result will occur and all bicycle products from China will soon carry the 25 percent tariff.

So, now that you see how my entire business (and most of U.S. bike industry) is reliant on our partnership with our Chinese manufactures you can truly understand how much this trade war is going to impact the bike industry. Sadly, since we are a small company and since we only had three weeks to prepare for this 25 percent increase in duties, we can't afford just to eat the increase in costs and we have no choice but to raise our prices for our electric bikes (and most likely soon do the same on all our bikes and bike accessories). What used to be an extremely affordable $1,999 smart electric bike (Volta) will now be $500 more expensive and will retail for $2,499. This dramatic rise in price is necessary to ensure that we can continue to operate and are able to make the required margins to survive. The only comforting thing with this price increase is that I know other bike companies will have no choice but to follow suit.

Not only will these tariffs impact our sales of electric bikes in the short term, but the long-term planning for our future electric bike development is also now up in the air. We have plans to release many more electric bikes over the next 1—2 years (such as our cargo electric bike, Capacita) but it is tough to plan in this trade war environment.

We are currently receiving quotes from new manufacturers in Taiwan and other Southeast Asian countries, but this process will take at least another 12 months before this will make any impact to our business (and we suspect that these countries will not be able to make the high quality product at the desired affordable prices that we need). Lastly, we looked into assembling bikes in the U.S. but the 25 percent tariff is also on electric bike parts from China (ex: motors) and there are no manufactures in the U.S. producing these at any reasonable scale.

Bicycle Industry Impact

We are lucky to be in an industry where there are so many passionate business leaders and advocacy groups that fight on behalf of the industry for the betterment of our customers. As soon as the electric bike tariff was made official our industries' largest advocacy groups, PeopleforBikes and Bicycle Product Suppliers Association came out and provided the entire community with information on how we could help to remove electric bikes from the list of 284 categories. Industry leaders from top companies like Trek and Kent testified in person against these tariffs (all in all, over 230 letters were submitted to the USTR). The industry is also filing a request for electric bikes exclusion on behalf of the entire bicycle industry but, sadly, I am skeptical that this will work.

The industry argued these main points to try to get electric bikes excluded from the 284-category list:

  • No one is producing electric bikes in the US at any reasonable scale because the infrastructure to do so does not exist.
  • These tariffs will not lead to US brands looking to manufacturer in the US but instead will lead brands to manufacturers in Taiwan and other Southeast Asian countries.
  • The tariffs have the potential to hurt jobs within the bicycle industry without having any positive impact on US manufacturing.
  • Even U.S. brands who are trying to make bikes in the U.S. are against these tariffs. One example is Kent International, one of the leading volume sellers of bikes in the US distributing mostly to Walmart, Target, and other big department stores. Kent opened a facility in South Carolina in 2014 to try to bring bicycle manufacturing back to the US and are starting with only the assembly and painting process (almost all frames and components are being imported from China). Kent argued that tariffs on imported parts from China are undermining their efforts to bring manufacturing jobs back to the US and will make it difficult to continue to grow and offer more jobs.
  • Sales volume of bikes has been relatively flat over the past 20 years and electric bikes are finally giving the industry the opportunity to expand and to get more people on bikes. These tariffs could ruin this opportunity as the tariffs could increase the price of electric bikes outside of the average consumer's budget (decent electric bikes were already $1,500-plus before these tariffs).
  • To add to the irony of this situation, while US companies will have to pay 25 percent to import electric bikes from China, China e-commerce sellers can ship bike products into the US without the collection of duties and without the collection of sales taxes. This will allow an unfair advantage to Chinese sellers and will harm our independent bike shops and our U.S. e-commerce sellers.
  • The Trump administration said the tariffs are necessary to protect national security and the intellectual property of US businesses, but the bicycle industry does NOT have these problems. If the bicycle tariffs are not protecting national security, intellectual property, or US manufacturing then why are bicycles included as one of the categories?
  • The EU put a huge anti-dumping tariff on all electric bikes from China earlier this year and news just came out that 33 percent of all importers have stopped their e-bike imports from China and have not found an alternative solution. Read more about this here.
  • Industry leaders and advocacy groups are doing a fantastic job at being loud, educating the community, and hiring talented lobbyist groups to speak with the right people. Yet at the end of the day, we just don't have enough money and influence to make a difference when it comes to these tariffs.

Consumer Impact

The tariffs are going to force U.S. bike brands to raise the retail prices of their bikes and passing these additional tariff costs onto customers will lead to a slowdown in consumer spending. Less consumer spending will ultimately lead to fewer bikes being ridden and more expensive transportation for low-income people.

In addition to raising prices, these tariffs could also lead to fewer jobs in the bike industry as companies will be forced to spend less and could even result in some companies going out of business.

Conclusion

As you can see, my business and the collective bike industry have spent a lot of effort in trying to reverse these tariffs by listing numerous reasons why electric bicycles should be excluded but, in the end, it has not been enough, and it seems the policy changes are out of our control.

In the past eight years of running this business, I have learned a lot about how policy changes are made and what I've realized that it really comes down to money and influence. The industries that have enough cash and high-powered friends can influence policy while the others can't, regardless of rational and what is better for the overall public. It is a shame that the comparatively small $6 billion U.S. bicycle industry has little pull because bicycles make the world a better place. The bike is such a compelling product. It's healthy and fun benefits should not be ignored. Everyone should be against any policy that has a chance to put fewer bikes on the road.

As for Pure Cycles, I know that we will continue to succeed and do what we have always done with every other obstacle in our way over the past eight years ... survive and thrive!

How You Can Help

If you want to help end this 25 percent bicycle tariff and have your voice heard, please fill out this form on peopleforbikes.org.

Topics associated with this article: Trade/tariffs, Electric bike

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