Downstream Effects of Upstream Tariffs

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While coronavirus dominated headlines in March and April, marine companies in most sectors were still feeling the effects of tariffs. In the parts and accessories world, the impact of tariffs varies widely from company to company, but it seems to ripple to most everyone. “It cost us gross margins last year,” said Mike Keller with Keller Marine. “It’s a big deal.”

A study from the Federal Reserve in December showed that tariffs were hurting manufacturing, and that the damage far outweighed any benefits, according to The Wall Street Journal’s editorial board. American industries have in some cases suffered more than their counterparts abroad depending upon how the tariffs are applied. For example, U.S.-based speaker manufacturers such as JL Audio are tariffed for sourcing magnets in China — there are no such suppliers in the United States — but speakers assembled entirely overseas and shipped to America remain tariff-free.

Life Industries has not been affected much by tariffs, said company president Grace Schmidt, because it has always sourced in the United States when possible. It takes its commitment so seriously that it has discontinued certain products that have seen production move abroad, and this came decades prior to tariffs.

Raul G. Pla said Florida-based antenna manufacturer AirWave is getting off easier than its competitors that manufacture antennas overseas, which are facing a 25 percent tariff. “We’re much more competitive, and that’s why we’ve been able to raise prices,” Pla said. “We’re only passing along 15 percent, when we know our competition is bringing in completely finished products. And when they bring in the finished product, they get taxed 25 percent.”

Pla added: “We do the entire final assembly in America, but all the raw materials are sourced from overseas, and some components are from China. That definitely has been affecting us; we’re absorbing what we can but, depending on the situation, passing it along to our customer.”

AirWave has brought more parts of the operation in-house and changed to a U.S. ratchet manufacturer versus one from abroad, Pla said. Costs have run about 15 percent higher than before the tariffs, but that was easy to build into the price because the company had launched a new product line.

“We were able to kind of mask the tariffs because we were providing a product that has a lot more features, and hit customers with one new price,” Pla said.

The tit-for-tat nature of the tariffs, and changes in whether they will or won’t be implemented, results in confusion and sometimes additional price increases, said Keith Wansley, president of Seawide Distribution. “We’ve seen manufacturers say, ‘This is what we’re hit with now, and we could be hit with a second tariff in eight months.’ So instead of doing two price increases in one year, they’ve just said, ‘OK, worst-case scenario is a 25 percent increase total, so we’re just going to do a 25 percent increase now to be safe,’ ” Wansley said. “That has affected quite a bit of these manufacturers.”

Price increases without any discernible benefit to the consumer can be problematic. Natural price adjustments in the marketplace are easier for businesses to withstand; unnatural price adjustments that come from tariffs are difficult for companies to take in stride because they come so fast, rather than over time like more natural price adjustments, Keller said.

Those increases are seen at various layers of the process, sometimes in several, Keller said. “We just couldn’t mark it up fast enough because it’s not a natural pricing increase that’s pushing it up 25 percent,” he said. “When you have unnatural things in economics, they don’t follow economic rules.”

Tariffs create ripple effects that have caused companies to get creative. “I think what dealers didn’t understand and what did cause ripple effects is when the raw materials changed by 25 percent, and then the product price changed by 25 percent,” Keller said. “You can’t just raise the price of a boat 25 percent just because it’s aluminum and blame it on raw materials. Some people moved to raise pricing probably a little more than they should’ve. And prices won’t come down as fast as they went up, and theoretically they should. When these fluctuations are natural, that’s what should happen.”

The fast nature of increases also gave Amazon yet another competitive edge, Wansley said. “Amazon’s got power and money to buy lots of stock,” he said. “They can buy at a lower price in bulk, and that takes a lot of people out of the game. You don’t see them change prices until they run low on inventory or until they have to accept price increases.”

The China tariffs are impacting the fishing industry, particularly companies that import certain artificial lures, hooks and reels, said Mike Leonard, who heads up government relations for the American Sportfishing Association. “The Phase One deal, which reduced tariffs on those products from 15 percent to 7½ percent and eliminated other proposed tariffs, was welcome,” Leonard said. “But no one wants to see a 7½ percent increase in the cost of their product, and it hurts those companies’ bottom line. Impacts to production in China related to the coronavirus outbreak have created even more challenges recently.”

Even companies based in the United States have advocated for the end of tariffs, said Jesse Simpkins, an ASA board member and marketing director for St. Croix Rods. “This is something we have been cognizant about as an industry,” Simpkins said. “We don’t manufacture outside the U.S., so the effect has been minimal, but we want to make sure we are staying on top of it. … We are a significant player, and we need to make sure we’re doing everything to make the industry stronger.”

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