Trade War Troubles

From importing speaker components to exporting boats, tariffs are affecting all parts of the industry
Author:
Publish date:
Boatbuilders such as Bertram saw European exports die this past summer.

Boatbuilders such as Bertram saw European exports die this past summer.

Unfair. Scary. Insane. These are just some of the adjectives that marine manufacturers are using to describe the trade war among the United States, China and the European Union.

“We’re seeing the effects rippling throughout the supply chain,” says National Marine Manufacturers Association president Thom Dammrich. “What’s worse is that these tariffs are implemented on very short notice, and it’s difficult to deal with sudden rising costs.”

During the past several decades, speaker-component manufacturing in the United States has dried up, leaving OEMs, including Florida-based JL Audio and California-based Clarion, no option but to source parts globally. “In most cases, the specialized suppliers no longer exist in the U.S., and the few that still exist are small, many have old technology, and they simply cannot build equivalent parts competitively,” says JL Audio marketing vice president Manville Smith. The last U.S. ferrite loudspeaker magnet manufacturer closed in the late 1990s, he adds.

“A lot of those manufacturers happen to be in China. It’s the only place you can buy good-quality parts to make speakers,” says Clarion Corp. America president Chris Honma.

Tariffs on components from China will penalize U.S. manufacturers, according to JL Audio president Andy Oxenhorn. That’s because the speakers themselves — meaning those sourced and built entirely in China or elsewhere — are not tariffed, Oxenhorn says.

To Offshore or not to Offshore?

There are countries other than China and the United States where companies can build electronics and loudspeakers. The tariffs on China will help those countries, rather than boosting business and manufacturing in the United States, Smith says.

“If we can buy the same parts, from China or elsewhere, and build the products in another country, we avoid these high tariffs,” Smith says. “We would much rather keep our production here in Florida, but we may not be able to if our own government keeps creating obstacles.”

Oxenhorn agrees that the inability to plan for sudden tariffs has exacerbated the situation. “We’re single-sourcing almost everything we buy, and it took us years to find the quality that meets our standards,” Oxenhorn says. “This situation is unfair and really not well thought out. China has done things that are not competitive. But don’t expect us to turn on a dime, because it’s going to hurt a lot of customers and employees, and it’s going to impact sales and profitability.”

A One-Two Punch

Some boatbuilders are getting hit twice: first by the rising costs from tariffed components that they import from China, then by retaliatory tariffs on boats that they export to Canada and the European Union, says Bertram CEO Peter Truslow. “Every boat has materials from China,” he says, including stainless steel, electrical components and fiberglass. “It’s pretty scary because a lot of components just aren’t built in the United States anymore. I know the theory is that maybe the manufacturing would move back here, but that would take a long time.”

Smith says it would take decades.

The import tariffs on China weren’t a concern initially because many U.S. manufacturers thought the disputes would be solved quickly. But boatbuilders are, indeed, feeling the effects. “A lot of our vendors are increasing prices or adding a tariff surcharge on their invoices,” Truslow says. “Anything imported from China is subject to at least a 10 percent tariff. That’s a substantial portion of every boat. We’re seeing 10-plus percent increases; they’re just starting to come in from some very important vendors. In most cases it’s not really a price increase; it’s a straight surcharge on the whole bill.”

Bertram builds semicustom boats, so a lot of the materials are sourced from the United States, and that helps offset the pain of increases, Truslow says. But for production builders of smaller boats, that’s often not the case. “The small-boat companies are probably importing more from China,” Truslow says.

If tariffs persist, manufacturers like JL Audio may have to move production outside the U.S.

If tariffs persist, manufacturers like JL Audio may have to move production outside the U.S.

Europeans Delay Boat Purchases

At the other end of the trade war, boats exported to Canada, the European Union and Mexico are being hit with retaliatory tariffs. And the continued disintegration of trade talks with China is pushing America toward a long-term trade war, Dammrich says.

The tariff situation has essentially stopped all U.S. exports of boats to Europe, Truslow says. “Right now we have four very serious customers in Europe that are taking a wait-and-see approach,” he says. “What’s going on is insane.”

Those potential buyers are interested in the new Bertram 61. If they decide against buying, that means nearly $4 million in lost sales for each boat. “That’s a lot of money, but fortunately the domestic and international non-European interest in the boat — from places like Japan and Central America — has been really good,” Truslow says. “But the effect is going to be longer term. We have boats to build right now, but the problem is, eventually we are going to need the European orders.”

Even before the tariffs kicked in, the United States had been attracting a growing number of foreign boatbuilders, not just from Europe, but also from Australia, England and New Zealand. “Our economy is strongest in the world, by far,” Truslow says. “It’s a great place to export boats.”

Manufacturers Grow Impatient

But it’s not an even playing field when American builders don’t have the same advantages abroad, Truslow says. “Truthfully, because European buyers are less apt to be focused sport fishermen, they have good options over there for a significantly lower cost,” Truslow says. “They’re not going to get the same quality as a Bertram, but when it’s half the price, they’re going to look at it. We chose not to even go to the Cannes and Genoa boat shows — and my understanding is that there were hardly any American builders there — because we felt our resources would be better directed at the American shows.”

Though Bertram enjoys brand recognition in Europe, particularly in the Mediterranean, Truslow fears a decreased presence will have lingering effects. “I remember vividly that exports to Europe in 2009 and 2010 were absolutely critical to the survival of a lot of companies,” Truslow says.

“A lot of boat business owners have been somewhat patient, saying, ‘OK, this is part of a strategy to achieve free trade,’ ” he adds. “But patience is wearing thin, and there is a deep concern that this administration doesn’t have a reasonable plan to resolve the disputes and get to free trade.”

This article originally appeared in the November 2018 issue.

Related