Trade Wars

Lingering tariffs are costing jobs and market share for U.S. boatbuilders
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Two years after they started, the ripple effects of tariffs continue to impact multiple sectors of the U.S. marine industry.

Two years after they started, the ripple effects of tariffs continue to impact multiple sectors of the U.S. marine industry.

Regal Marine founder Paul Kuck took his first boat to Austria in 1975. “My dad was very passionate about international sales,” says Tim Kuck, executive vice president of Regal and one of three Kuck children running the company today. “Up until the time he died, he was traveling internationally. We’ve got long-term relationships with our international dealers.”

One relationship in Germany and one in Switzerland have lasted 35 years, while an importer in Spain has been working with the company for 32 years. “We’ve been nurturing these relationships literally for decades,” Kuck says.

That work is becoming more difficult because of the ongoing international trade war. The Trump administration has imposed steel and aluminum tariffs on countries and regions around the world, prompting a flurry of retaliatory tariffs that often include boats. The trade war with China has prompted further tariffs on hundreds of components that U.S. manufacturers source from the region. Tariffs on aluminum and steel have caused domestic companies to raise prices on the materials, creating additional costs for many manufacturers.

In that economic environment, Kuck, like many U.S. boatbuilders, is finding it increasingly difficult to operate overseas, particularly with the 25 percent tariff levied by the European Union, which is the world’s second-largest boat market. “Our sales are down,” Kuck says. “We’re still staying after that, but it’s hard to compete with European manufacturers, which include Sea Ray and Bayliner, with their smaller boats being built in Poland. … This is not a sustainable position for the long haul.”

U.S.-built exports have dropped about 30 percent since retaliatory tariffs took hold, says Nicole Vasilaros, senior vice president of government relations and legal affairs for the National Marine Manufacturers Association. “We have heard from certain manufacturers that all exports to the E.U. have stopped, so it depends on the type of boat,” Vasilaros says, adding that many U.S. boat and component manufacturers have also seen raw-material costs skyrocket. “This is why we feel strongly that tariffs don’t work. It ends up escalating problems and has unintended consequences. The United States put tariffs on aluminum and steel, and the boating industry is caught in the crosshairs.”

Regal has nurtured international relationships for decades, but the trade war has made it difficult to operate overseas. “Our sales are down,” says executive vice president Tim Kuck.

Regal has nurtured international relationships for decades, but the trade war has made it difficult to operate overseas. “Our sales are down,” says executive vice president Tim Kuck.

Origins

The Trump administration announced in March 2018 that it would impose tariffs of 25 percent on steel imports and 10 percent on aluminum, angering trade allies such as Canada, Mexico and the European Union. The U.S. Department of Commerce announced the following month that it would add countervailing tariffs on aluminum sheet from China, with varying amounts imposed on Chinese suppliers. An investigation determined that China was dumping aluminum sheet, allowing the country to sell it to the United States at low prices.

The close look at aluminum sheet was the first time in three decades that the Commerce Department had initiated such an investigation, which is typically only launched after an industry files a complaint, Vasilaros says.

As a result of the steel and aluminum tariffs, Canada, Mexico and the European Union announced retaliatory tariffs on many American goods, including boats. China also imposed tariffs on U.S. products, prompting the United States to counter with a first list of tariffed products from China. Now there are four lists, as the trade war continues, Vasilaros says.

“We estimate that well over 400 marine-related parts, components and products have been tariffed by the U.S.,” Vasilaros says. “These are products that U.S.-based manufacturers are sourcing from China and other parts of the world. This has been a tit-for-tat tariff war for nearly two years now. It started with list one and a certain set of products. Now we’ve gone to four lists that amount to hundreds of billions of dollars.”

No Alternatives

Manufacturers such as JL Audio are unable to source ferrite loudspeaker magnets in the United States because the last domestic producer closed in the 1990s, says marketing vice president Manville Smith. That puts the company at a disadvantage, since speakers assembled entirely in China are not tariffed and JL Audio did not qualify for an exclusion — something companies can apply for if they can prove unfair burden to source domestically, though the results have been spotty. Tariffs on rare metals and voice coils also have increased JL Audio’s manufacturing costs in the United States, ultimately helping competitors that manufacture overseas and import completed systems into the country.

And finding a new source for components is not always easy, Vasilaros says. “There’s an assumption that people just get things from China because it’s cheap, and that’s not always the case,” she says. “Many manufacturers have spent decades building relationships with companies, and have ensured quality and quantity control. I’ve heard of manufacturers that had to take out loans to pay the tariffs. These are often small businesses, and they have to pay tariffs when they buy the product, not when they sell the product. That’s been problematic.”

Rising Costs

SafAshor Products International domestically sources aluminum for its gangplank systems but still has seen prices spike, says president Stephen Resta. “The labor market is tighter, so the cost is going up,” Resta says, adding that welders making $25 an hour a couple of years ago are now asking for $40. “You add that to the increase of raw materials costs, which is about 25 percent across the board. Without the element of foreign competition, why wouldn’t U.S. suppliers take advantage of that fact? They know manufacturers have to buy from them, and they can increase their prices.”

Products that cost $1,200 a couple of years ago now run $1,500 to $1,600, he says. The increase has translated to a 30 to 40 percent drop in business for the company. “We’re in a bad position,” Resta says. “I’m going to study my costs very carefully and try to renegotiate with my manufacturer to try to tighten things up as much as I can and get prices down, even if margins are very slim.”

The “tit-for-tat” trade war with China has become a “very volatile situation” for U.S. marine manufacturers, says NMMA’s Nicole Vasilaros.

The “tit-for-tat” trade war with China has become a “very volatile situation” for U.S. marine manufacturers, says NMMA’s Nicole Vasilaros.

Exclusions

The Office of the United States Trade Representative launched an exclusion process for companies that prove the tariffs are overly burdensome and expensive, but that process has created a lot of confusion, Vasilaros says. The process applies to the Section 301 tariffs on Chinese imports that are affecting more than 350 commonly used marine components, materials and parts, according to NMMA.

Lists 1 through 3, currently in effect, impose a 25 percent tariff on $250 billion worth of products. Those lists include anchors, antenna receivers, boats, fiberglass, fishfinders, fuel-injection pumps, GPS devices, propellers, lines, seats, trailer tires, and miscellaneous plastic, metal and rubber parts for boat equipment.

List 4A imposes a 15 percent tariff on $112 billion worth of products, including floating docks, some fishing gear and wake-sports equipment. List 4B would slap another 15 percent tariff on $160 billion of products, but it was postponed amid fresh trade talks between the United States and China in late 2019. That list includes life jackets and some fishing gear.

The exclusion timing for each list varies. The NMMA has helped members secure 12 exclusions that have resulted in more than $20 million in savings, Vasilaros says, but only about 10 percent of exclusions that apply have been successful. “A lot of it is a little bit of a black hole for what works,” she says.

Even companies that are successful have to redo the entire process the following year. And the process is confusing — there are thousands of products on the lists that are broken into Harmonized Tariff Schedule, or HTS codes — so companies that can afford to often hire outside legal counsel to help, Vasilaros says.

Avenues for relief are specific to the list products are on, making the process technical, and negotiations between China and the United States continue to disintegrate. “My advice to the industry is to prepare to be on a list for a long time,” Vasilaros says. “Some businesses look at these breakthroughs as a glimmer of hope, but it’s been very hard to predict, and it’s become a very volatile situation.”

Retaliatory Tariffs

China is among countries that have imposed retaliatory tariffs on boats, Kuck says. One Regal dealer says bringing a boat to China would mean a 55 percent increase in cost.

“We’re working with a couple Chinese customers who want to buy boats in Hong Kong, where they have tax advantages and beautiful marinas,” says Rob Parmentier, president of Marquis Yachts. “Talking to our dealers there, I can tell there’s a lot of confusion from the Chinese government, as well. When you tariff billions of dollars of products and you have 10 different changes, it’s crazy.”

Exports haven’t come to a complete standstill, but almost, says Steve Heese, president and CEO of Winnebago-owned Chris-Craft Boats. “I can’t give you numbers, but we’re off what the NMMA is saying the industry is off,” Heese says.

A 10 percent tariff on boats sent to Canada was removed in May, but the 25 percent tariff imposed by the European Union has remained challenging for U.S. boatbuilders, Parmentier says. The company has seen exports drop from about 30 percent of business to less than 10 percent. “Our dealer in France had a number of Marquis Yachts on order, and he won’t even take them until the tariffs are taken off,” Parmentier says. “He’s going to buy boats from Finland.”

If the situation lingers, that could mean the end of some distribution points, with longer-term market share losses. “There’s got to be commerce, and if there’s no commerce going on, you lose the relationship,” Parmentier says.

There are four lists of tariffed products from China, so sorting out the exclusion process can be extremely confusing without legal help. 

There are four lists of tariffed products from China, so sorting out the exclusion process can be extremely confusing without legal help. 

The European Union

Regal has maintained an aggressive presence at international events such as the Cannes Yachting Festival and Düsseldorf boat show, but Kuck has seen fewer U.S.-built competitors at those shows; this year, he saw none in Cannes.

“We need the current U.S. administration to understand how these tariffs are affecting the marine industry in a significant way that puts us in a place that we cannot effectively compete,” Kuck says. “And it’s costing jobs here in the U.S., while giving an advantage to the European builders. I can’t necessarily put a head count on it, but the reality is our international sales are down, and that translates to jobs.”

The strong dollar has also given European builders a currency advantage, and international builders don’t face tariffs on boats they send here, Kuck says. “We kind of resent that,” he says. “We just want fair trade. We believe in competition, but if it’s a 5 percent tariff for a boat to come here, it should be 5 percent for us to go there. But it’s not even remotely close to being fair, and European builders have a tremendous benefit.”

There has been talk in Washington about adding imported boats to the list of tariffs, Heese says. “Because of the strong dollar, [Italy’s] Azimut and [France’s] Beneteau are having a field day, for sure,” he says, “when we’re locked out of their market and they can sell here.”

The long-term concern is loss of market share, Vasilaros says. “Particularly in the large-boat segment where there are a lot of competitors, I think that market share’s going to be eaten up,” she says. “People are not willing to spend 25 percent more to have an American-made vessel. They will just buy from another country.”

Globally United

The NMMA has been working with the International Council of Marine Industry Associations and the European Boating Industry association to rally against tariffs in a show of trans-Atlantic unity. “Our basic position is that with tariffs and trade barriers, there are no winners,” says EBI secretary general Philip Easthill.

The trade volume going from Europe to the United States is growing, according to Udo Kleinitz, secretary general of ICOMIA, but there’s also growing concern that the United States will add tariffs to boats coming from the European Union.

And case studies of some European dealers and distributors have shown revenue plummeting as much as 80 percent because fewer U.S. boats are selling there, translating into lost jobs, Easthill says. “If those boats are not coming, the sales are lost, and also the services that go around it, be it marketing or anything else,” he says.

Experts say the industry is too small to sustain fragmentation, and having all three associations appearing jointly has helped regulators in different countries understand the gravity of the situation, Kleinitz says. “We see our sector as a rare example of cross-Atlantic alignment on trade,” he says.

The appointment of a new European Commission in November 2020 is giving some hope for negotiations, Easthill says, but time will tell if that hope is properly placed.

Marquis Yachts says its exports have dropped from about 30 percent of its business to less than 10 percent because of tariff pressures.

Marquis Yachts says its exports have dropped from about 30 percent of its business to less than 10 percent because of tariff pressures.

Mexico and Canada

One bright spot in the trade war has been President Trump’s reversal of steel and aluminum tariffs on Canada and Mexico as the three countries work to hammer out a new trade agreement. As a result, Canada and Mexico reversed retaliatory tariffs on boats after a year of struggle for Canadian dealers and U.S. builders that rely on sales to that region. (Canada is the world’s third-largest boat market.)

The only lingering effect from the Canadian tariffs is carry-over inventory and the sales slump from the 2019 show season, according to Rick Layzell, CEO of the Boating Ontario Association. If a deal can be reached to replace the North American Free Trade Agreement, that should be the end of the problem.

“The tariff made the price of products more expensive, it created uncertainty, and it slowed sales,” Vasilaros says. “We saw it at the Toronto Boat Show. Some boats were upward of a 17 percent increase. The long-term win was it did get all the parties to the table to help finalize the new NAFTA.”

“We lost a season with the Canadian tariffs, and when they were repealed, it was too late in the season to recoup those sales,” Heese says. “We’re reloading. It’s a great thing that tariff went away because of the action of NMMA and NMMA Canada.”

But a new threat looms with regard to U.S.-Canada commerce: The Canadian government is proposing a luxury tax on boats over $100,000 that could have far-reaching effects, Layzell says. “We had a nice contingent of Canadian customers visit us at the Fort Lauderdale boat show, but they were concerned about this luxury tax,” Parmentier says. “It’s another negativity. It’s another hoop to jump through.” 

This article originally appeared in the February 2020 issue.

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