The impact of U.S. tariffs on Chinese goods has been minimal on the tree care industry to date, with the higher price of goods being passed on to consumers in the form of higher costs for gear and equipment in only a few areas. But, with a new round of tariffs pending, that could soon change.
Tariffs consistently have been in the news since early 2018, when the U.S. imposed 25% and 10% taxes, respectively, on steel and aluminum imported from China, resulting in an escalating trade war with China. So far, there have been three lists of Chinese goods hit with tariffs, known as Section 301 tariffs, covering thousands of items and accounting for billions of dollars in added expenses, as well as the Section 232 tariffs for steel and aluminum. To date, tariffs applied to items on the Section 301 and Section 232 lists haven’t significantly affected the tree care industry.
However, a fourth Section 301 list is under consideration for additional tariffs of up to 25% on top of the tariffs already applied in some cases, and this list could see a hike in prices on materials and finished goods that tree care companies regularly purchase. This fourth Section 301 proposed list, published in May 2019 by the Office of the United States Trade Representative, includes, but is not limited to, additional tariffs on already-taxed steel and aluminum products; other base metals; textiles and apparel, including footwear; and machinery and some electronics, including items such as GPS devices.
According to Fortune.com, “Put simply, a tariff is a tax typically imposed on imported goods. The idea is that the tariff will make foreign-made products more expensive, driving consumers to turn to alternatives from domestic manufacturers who are not subject to the tax, and thus can charge less. In theory, this boosts the economy of the country imposing tariffs.” It appears, based on a series of tweets from President Trump on May 13, 2019, that he feels imposing tariffs on consumer goods imported to the U.S. from China will drive consumers to buy products made in the U.S.
Trade is at the center of many businesses. What a proposal to move trade to non-tariffed countries or “reshore” often fails to consider is that it’s neither simple nor cheap to move production to another country. Added to that is that many suppliers have long-standing and friendly relationships with their production partners, and moving production not only hurts both parties financially, it could affect their ability to work together in the future if or when today’s tariffs are rolled back.
Reshoring is the act of bringing manufacturing that had been moved out of this country back to the U.S. According to the Outdoor Industry Association, to date, there has not been a wave of domestic production in response to the tariffs imposed from Section 301, lists 1–3. However, the benefits of vertical integration within the U.S. are undeniable, including no reliance on suppliers, no overseas shipping delays and lower transit costs, including eliminating duty.
The current push to reshore production to the United States is admirable, but ultimately, the costs associated with building factories, bringing in the specialized machinery needed to produce goods and finding qualified staff to run that machinery can be cost-prohibitively expensive, according to a variety of sources. Not to mention that the long lead time involved in making a move like this would mean businesses still need to source products from overseas in the meantime, compounding their costs.
Diversified supply chain
The tariffs on Chinese goods was a popular topic for companies of all sizes at Outdoor Retailer, a conference and trade show specific to the outdoor recreational industry held in Denver, Colorado, in June 2019. The implications of tariffs ranged from being a nuisance for larger companies with diversified supply chains to potentially catastrophic for smaller companies relying heavily on their Chinese manufacturing partners.
If the outdoor-recreation industry is grappling with tariffs, it’s not unreasonable to draw a dotted line between outdoor recreation and tree care. After all, to cite one example, recreational climbers and climbers working in tree care use similar gear. Previous tariff lists included steel and aluminum, but list 4 will include everything that had been excluded on the previous lists, including machinery and components, GPS devices, gloves and apparel. With list 4, many retailers rushed to get goods on container ships and delivered to the U.S. prior to the anticipated effective date in mid-July, to beat the price increase on goods they had already purchased.
At a panel hosted by the Outdoor Industry Association at Outdoor Retailer, Sara Bowersox, global compliance manager for Keen, (KEENTM) stated that the U.S.-based footwear manufacturer is committed to sourcing the best materials and production partners, no matter where in the world they are located, so they can provide superior product for their customers. According to Keenfootwear.com, “Keen products are manufactured around the world, including in factories in the United States, Cambodia, China, India, Mexico, the Philippines and Thailand.” The diversity of the countries from which they source their products eases the strain, according to Bowersox. However, Bowersox stated that the financial impact of the tariffs on goods imported from China resulted in an increase in prices on certain product lines for their consumers.
John Teachey, director of supply chain for Sherrill, Inc., a provider of arborist and climbing gear and a long-time TCIA Associate Member company based in Greensboro, North Carolina, had a similar thing to say about the diversification of their sourcing partners. “We’ve had some impact [from the tariffs]. Fortunately, Sherrill doesn’t have a high reliance on Chinese-manufactured goods,” Teachey says. “It can be difficult to find the people with the capability and the know-how to create quality product. We’ve been fortunate to find it in a lot a places, including other Asian countries, Europe and the United States.”
The simplest option for distributors to put into effect is to pass the cost of these tariffs on to consumers. By doing this, retailers can protect margins and continue to make a profit. However, this doesn’t result in increased profits, and thus likely also won’t result in increased revenue.
Retailers must also consider the effect a price change will have on loyal consumers who have purchased identical product in the past. This tactic could price a product out of the market, rendering it unsellable.
“For most of the consumer products on this list, there are very few alternative sources of supply,” said David French, National Retail Federation senior vice president of government relations, in his testimony before the Section 301 Committee in Washington, D.C., June 21, 2019. “It would be impossible for all market participants in our industry to simultaneously move sourcing to other countries. The capacity does not exist … In the short term, retailers would be forced to continue to use Chinese suppliers and pass on higher costs to their customers.”
Many retailers purchase their stock at least 12 months in advance of the season in which they intend to sell it. Last fall when list 3 – which included metal components – dropped, Sherrill received cost updates within 24 hours from many of their vendors. “We’ve used a lot of different strategies to get ahead of cost increases, including, in some cases, buying ahead. I think a lot of people did that as well and were smart to, to hold off the cost change as long as possible,” says Teachey. “A lot of people thought the tariffs would go into effect and potentially go out of effect relatively quickly, but they’re obviously here to stay for the foreseeable future.”
Teachey goes on to say, “While we have passed along some cost, we’ve mostly been able to hold back and manage costs to stay competitive so we can take care of our customers.” When it comes to climbing gear, specifically, “The impact for us coming out of China has been minimal. Most of that product is made domestically or in Europe.”
Small price increases for the consumer have been common. Rock Exotica, a manufacturer of technical-rescue, rope-access and climbing hardware and a TCIA Associate Me mber based in Clearfield, Utah, also has dealt with the tariffs, specifically on aluminum. “We made modest price increases to help off set the increases caused by the tariff ,” says Brandon Lane, sales and marketing manager for Rock Exotica. “However, we also are seeing business-cost increases across the board, so we can only raise our prices so much and still be competitive with companies sourcing from places like Taiwan.”
The effects Rock Exotica is feeling from the tariffs are a bit different. “We do not import anything directly from China. However, the tariff on aluminum imported from China has created supply disruptions and price increases to the domestic supply,” says Lane. “We are trying to source domestically supplied raw material, but the price has been artificially inflated. It has made it more expensive to be a U.S. manufacturer.”
Other unanticipated costs of the tariffs include the time and energy, not to mention the manpower, businesses have put into researching other sourcing options. For smaller companies, this time, energy and manpower could be better spent focusing on innovation for new products to better serve climbers in the industry. Certainly, smaller businesses with heavy reliance on Chinese products will find themselves more distracted by the tariffs than others that are less invested in China, whereas larger businesses and those with a diversified supply chain are faring better. “With our diversification, we haven’t had to invest a monumental amount of manpower and can focus on other projects to move our business forward,” says Teachey. “It has been challenging but not crippling for our business.”
Adding to that notion of time spent, James Bradley, director of supply chain for Petzl, a French manufacturer of climbing gear and work-at-height equipment and a TCIA Associate Member company, mentions, “We have to be aware of the potential impact of each of the different lists and all the different product lines affected, so there’s definitely been an impact on our workload. Impact to costs might be less, but it’s certainly something we talk about quite often and are concerned about.” However, list 4 could be a different story. Bradley continues, “List 4 is a much longer list, so it would have a much bigger impact for us with regard to tacking on those costs if it goes into effect.”
Section 301 list 4 is looming – it’s the largest list yet, essentially encompassing all other goods originating from China, according to Scarbrough International, Ltd., an international and domestic logistics provider with locations worldwide. A price increase could be expected on essential items such as helmets and boots, as well as rope bags and textile tool buckets. Even the moisture-wicking sweatshirts that a tree care company purchases to brand with a company logo could be more expensive if list 4 goes into effect, according to Bill Weber, team leader of Arborwear, a rugged apparel and gear company for arborists and also a TCIA Associate Member company based in Chagrin Falls, Ohio.
“We have not had to pay any new tariffs yet, but we are keeping a very close eye on the situation. All of our products are basically on list 4,” says Weber. “Here’s an interesting thing to consider; 4% of all imports from China to the U.S. are apparel or footwear, yet 30% of all tariffs paid as a result of importing from China come from apparel and footwear. It is a very disproportionate balance for our particular industry.”
How will the added cost affect tree care companies looking to outfit their crews with PPE and apparel? Good news for now – there have been some small price increases on gear, but gear suppliers are doing their best to manage costs in favor of supporting customers. The main issue at this point is uncertainty. At the time of printing this issue of TCI, based on President Trump and President Xi’s meeting on June 29, 2019, Section 301 list 4 tariffs will not be imposed while the U.S. and China continue discussions to resolve the trade dispute. However, this could change. Additionally, where the conversation centers around Chinese imports today, it could be Vietnam or Mexico tomorrow.
Bill Weber shares one last thought. “Something interesting to note, at least in the apparel industry, is that many companies may move their production out of China to another country to avoid tariffs, but many of the factories in Vietnam, Cambodia and Thailand are actually owned by Chinese companies. So this begs the question: Do the tariffs accomplish what everyone thinks they do?”
Emily Duane is a former senior marketing coordinator for TCIA. She has worked in a variety of industries including accounting and corporate retail. Emily has a B.A. in Business Administration with a concentration in International Business from the University of New Hampshire – Manchester, and an A.A.S. in Fashion Merchandising Management from the Fashion Institute of Technology.