We’re focusing this global issue on countries and companies that are doing well but aren’t necessarily well-known in the U.S. Poland continues its rapid growth as Europe’s highest-volume boatbuilder; the 2021 America’s Cup could add $500 million to New Zealand’s boating economy; Taiwan, yacht building’s best-kept secret, is expanding its infrastructure to increase domestic use; and one French dealer is trying to ignite a pontoon craze in Europe.
For nearly two years, however, the U.S. boating industry’s international outlook has been clouded by trade wars on multiple fronts. There have been some positives. The tariffs from Mexico and Canada were lifted last summer, though many U.S. builders and Canadian dealers, while welcoming the relief, say it was too late to salvage last year’s sales season. Still, with the new NAFTA, or USMCA, being debated by the Senate, there’s reason to be hopeful that our northern and southern borders will remain tariff free.
Steve Powers, CEO of Power-Tech Propellers, which has a production facility in Mexico, says his company never saw much impact from the trade war. “The tariffs had no material effect on our business,” he says. “Looking at the bigger picture, NAFTA gives us the largest free trade zone in the world, and that’s a big deal for our company.”
Powers says that about 15 years ago he had to choose between Mexico and China for a production facility. He’s happy he went south. “Besides negatives I perceived in China, being based in Mexico also gives us a several-week advantage over products shipped from China,” he says.
The Eastern Front
On the eastern front, namely the European Union, the 25 percent tariffs on U.S.-built boats have been taking a significant toll on traditional exporters such as Chris-Craft, Regal, Four Winns, Marquis, Boston Whaler and a dozen other brands. According to the latest NMMA data, U.S. boat exports to Europe were down 28 percent through October 2019 compared to the previous year.
Regal, whose European presence started after Paul Kuck founded the company in the 1970s, has seen its exports dwindling, despite its efforts to wave the flag. Regal was one of the few U.S. brands to have a presence at the last Cannes show.
Marquis CEO Rob Parmentier says his French dealer has seven orders for new boats, but only when the tariffs go away. “Nobody wants to be the last guy to pay that 25 percent,” he says. “I don’t have margin in the boats to subsidize the tariffs.”
The lack of retaliatory tariffs on European boats entering the U.S. has arguably helped such brands as Axopar, Azimut, Galeon, Princess, Sunseeker, Fairline and other names that have grown popular in the United States. If the United States had placed retaliatory tariffs on those boats two years ago, it’s arguable that some U.S. builders would have responded with more adventurous motoryacht styles, since the demand is clearly there.
Perhaps the most wide-ranging tariffs are Section 232 duties on imported steel and aluminum, and the three lists, including dozens of marine products, in the Section 301 tariffs on Chinese imports. Taco Metals is one of many U.S. marine equipment suppliers caught in the U.S.-China crossfire with both sets of tariffs.
The 232 tariffs on imported steel and aluminum have been mostly passed through the supply chain to the end user, says Bill Kushner, who handles Taco’s tariff mitigation. “It’s not like it has brought back business for U.S. steel mills, as was the tariff’s intent,” Kushner says. “But we also haven’t lost any business from Section 232.”
Section 301 is another story. Kushner says the original intent of those tariffs was to protect high-tech U.S. industries from IP theft, but most of Taco’s products on the list are decidedly low tech.
“Much of what we’re buying are products that require old-fashioned, lost-wax castings for stainless steel parts,” he says. “The small quantities and custom fabrication are better-suited for the lower costs of labor overseas. The volume just isn’t what you’d see in automotive.”
The price-sensitivity of these items has prompted Taco and its Chinese suppliers to absorb some of the tariff costs, rather than pass it along to buyers. “We’re dealing with it and looking for product exclusions where we can,” Kushner says. “It’d be too expensive to manufacture here, and other parts of Asia would take too long to set up. You can’t just move engineered products out of China that easily.”
The tariffs now seem to be just another cost of doing business for U.S. boat and equipment manufacturers. Brunswick Corp. said in its third-quarter earnings report that it expects tariffs to have a $17 million to $22 million impact on its 2019 pretax earnings. While most companies don’t see those kinds of numbers, tariffs are clearly impacting bottom lines across the industry, with no end in sight.
Taco, which has done business in China since the 1980s, has moved some production back to the U.S. and to Taiwan. It’s also taking a wait-and-see attitude before launching new projects.
“When this is over, I don’t think China will go back to the low-cost provider that it’s been,” Kushner says. “Going forward, we’ll be looking at China as being less of an option.”
This article originally appeared in the February 2020 issue.