Tariffs Hurt American Outdoor Businesses, And How!

Executives from Keen, Vista Outdoor, Chico Bags and Nester Hosiery shed light on how shifting federal trade policy and unclear priorities are affecting outdoor clothing and gear manufactures.

By Philip Armour August 8, 2019

UPDATE (Thursday, August 8, 2019)

The article below was originally published on May 1. At that time, the Trump administration had already implemented punitive 10 percent tariffs on three lists of consumer products imported from China and had hinted that a fourth list of products was being considered for tariffs. A small handful of outdoor products were on lists 1 and 2, so the impacts to our industry were relatively minimal. Several outdoor products were on list 3, which represents $200 billion in total product imports from China.

On May 5, President Trump tweeted a threat, which he then carried out on May 10, to increase tariffs on list 3 from 10 percent to 25 percent. That action and the looming possibility of a fourth list that would include all outdoor products sent concern through the outdoor industry.

On July 15, President Trump threatened and on August 1 officially announced he would impose a 10 percent tariff on list 4 that will go into effect on September 1. List 4 represents $325 billion in product imported from China.

The below article was reported and written in early May, before tariffs on list 3 increased from 10 to 25 percent and before list 4 was impacted.

This article has been updated to reflect the subsequent series of events. Watch last week’s webinar to learn how your company can secure relief from these punitive tariffs. Read our latest alert, and stay tuned to this website and to OIA’s social channels for more on what this means for outdoor brands and how we are working to address the challenges.

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When the Trump administration released the so-called China 301 tariffs in October 2018, the outdoor industry—and OIA—jumped into action, lobbying in Washington D.C., and writing letters to representatives in order to scale back the increased tax implications. We also joined Americans for Free Trade, a business coalition that formed to convey the harm tariffs have on U.S. enterprise. In total, $250 billion in tariffs have been levied on raw materials and finished goods manufactured in China. And threats of another $267 billion still loom. Though purported to target aerospace, information and communication technology, robotics, and machinery products that have been heavily impacted by counterfeiting and intellectual property infringement, the tariffs impacted outdoor industry companies trading with China in everything from wool and apparel to tents and grocery bags.

More than 100 OIA members flew to Washington, D.C., in April during our Capitol Summit to ask members of Congress to repeal the China 301 tariffs. Capitol Summit is over but the threat of these tariffs continues to severely impact outdoor businesses. Use your social media channels to amplify our message that punitive tariffs hurt American businesses, threaten jobs and burden American consumers. Use our social media toolkit to tell your elected officials how #tariffshurt your business.

According to OIA’s International Trade Manager Rich Harper, candidate Trump made clear his intention to get tough on China, and now President Trump’s administration is using all the tools at their disposal to make good on that promise.

 

DO TARIFFS EVEN WORK?

The efficacy of import tariffs is hotly debated by historians, economists, politicians, and business owners. A person’s conclusions on the matter are heavily influenced by views on international relations and what America’s leadership role should be.

Since Trump’s first big trade move in November 2017, when he pulled the U.S. from the Trans-Pacific Partnership, China has continued to cement its international trade relationships with other countries. As part of its Made in China 2025 initiative, China is investing heavily in artificial intelligence, automation, and green energy. Chinese international economic influence is rising, and their trade networks are expanding and deepening. Chinese investment in international infrastructure projects throughout Asia, South America, and Africa are strengthening its influence, too.

Given the economic and global trade realities of the 21st century, the Trump administration’s concerns about Chinese abuse of U.S. copyrights and intellectual property are legitimate, according to Harper. But the outdoor industry—like many others—is suffering some collateral damage from the hardline retaliatory tactics.

Given the economic and global trade realities of the 21st century, the Trump administration’s concerns about Chinese abuse of U.S. copyrights and intellectual property are legitimate, according to Harper. But the outdoor industry—like many others—is suffering some collateral damage from the hardline retaliatory tactics. The Trump-appointed U.S. Trade Representative, Robert E. Lighthizer has granted some exemptions to the 301 tariffs, but many outdoor companies have been left scrambling to offset the surprise tax burdens. Businesses have been forced to reevaluate on multiple fronts, from renegotiating contracts and moving production to changing sourcing and increasing pricing.

 

NOT KNOWING IS THE HARDEST PART

Every product that’s imported into the U.S. gets classified by the Harmonized Tariff System (HTS). It gets a 10-digit HTS code and assigned a duty rate according to that product category. These duties range from zero to as high as 37.5 percent for apparel. The China 301 tariffs added 10 percent to China-produced goods and raw materials, with another 25 percent being threatened if trade talks fail. When the first 301 tariffs of 10 percent went into effect in October 2018, price structures for orders already in place could not be altered, so companies had to absorb those costs or pass them onto consumers.

“Think about the fact that the China tariffs went into effect like somebody dropping a brick,” says Sara Bowersox, trade compliance manager for KEEN Footwear. “They weren’t there one day, and then they were there the next day. Everybody in the world had orders in process in their supply chain, and they were not expecting that additional 10 percent.” “We have no idea what’s going to happen on almost a day-to-day basis with this. So you’re constantly giving people the worst-case scenario, and when they say, ‘When is this going to be over?’ You just have to shrug, because you don’t know. It may never be over. It may stay forever. I hope not, but we don’t really have any perspective on that. The disorientation to the flow of business has been really, really damaging.”

“When [people ask] ‘When is this going to be over?’ You just have to shrug, because you don’t know. It may never be over. It may stay forever. I hope not, but we don’t really have any perspective on that. The disorientation to the flow of business has been really, really damaging.”—Sara Bowersox, trade compliance manager for KEEN

For many American companies importing raw materials or finished products from China, the most significant pain point isn’t necessarily the tariffs themselves—though they hurt—it’s the unpredictability of the Trump administration’s trade policy.

“We’re used to being able to plan our business 18 months out with certainty, and the uncertainty is a challenge,” says Kelly Nester, CEO of Nester Hosiery in Mount Airy, North Carolina, the parent company of Farm To Feet socks.

Nester manufactures socks in the U.S., but the company buys wool in the Southern Hemisphere (Australia, New Zealand, South America, and South Africa) then ships it to China for spinning into yarn. “We need globally competitive raw materials in order to be competitive at manufacturing in North Carolina,” he says. “There are some really good yarn spinners in the U.S., but there are not enough to service our entire business. The infrastructure’s not there to manage all of our needs.”

Nester has altered his supply chain, but the threat of more tariffs has been as disruptive as the original tariffs themselves: “In hindsight, had we known it would have stayed at 10 percent, we wouldn’t have made changes at all. We mainly made some of the shifts because of the threatened jump up to 25 percent.”

This uncertainty limits growth. “We’re kind of on pause watching what’s going on rather than being aggressive the way our economy would like,” says Nester.

Salewa North America, which imports and sells a number of different products and brands ranging from ski equipment and apparel to footwear and climbing equipment, now pays 10 percent additional tariff on accessories within its apparel line: headbands, hats, and beanies. The tariffs have led to price increases for customers and lower margins for the company. There’s worry the tariffs will increase from 10 percent to 25 percent and that there will be more rounds of tariffs that include apparel, which has put a chill on the company.

“I’ve been monitoring the issue very closely and somewhat active on it in terms of preparing.” As a result, the company is “trying to reduce the sourcing exposure to China,” says Drew Saunders, country manager for Salewa North America.

Bob Schuettler, vice president of compliance for Vista Outdoor, echoes Nester and Saunders and adds that the volatility in the trade policy has made for choppy waters: “It is a harsh reality that we deal with every day and that we monitor every day…to see where we are and what that impact is and how we can go about finding options to help manage.”

THE STRUGGLE IS REAL—WITH NUMBERS TO PROVE IT

The 10 percent tariff increase in October 2018 raised California-based Chico Bag Company’s import taxes from 8 percent to 17.6 percent. This forced Chico Bag Company’s CEO Andy Keller to start working with a new manufacturing partner in Cambodia, which has lower tariff rates. It has also led to higher costs for consumers. According to Keller, anticipating the additional 25 percent tariffs that were slated for March 1 of this year (and were ultimately postponed indefinitely) has made settling on new price structures very challenging. Repeated price changes disrupt distributor relationships and can alienate customers.

“Companies can spend decades forming trading relationships or customer relationships with people,” says Keller. “Tariff increases essentially tear these apart…I’d rather be focusing on growing the company than on these reactionary [measures].”

Bowersox notes yet another unintended added insult to injury of tariffs are their chilling effect on research and development. “If you’re trying to do some sort of a launch, whether it’s a new company, or a new business unit, or even a new line within your brand, with this much uncertainty, it really hampers innovation,” she adds.

WHO’S THE WINNER AND WHO’S THE LOSER?

“I, personally, don’t agree with some of the tactics that have taken place, and I certainly don’t agree with the characterization of the costs so far,” says Nester. “I mean, this whole trade war, whether you believe it’s justified or not, it’s had significant costs on American companies. Maybe it is a necessary cost, but there has been a significant cost to American companies.”

Chico Bag’s Keller agrees with Nester that domestic companies are paying an outsize price and that the issue has been mischaracterized. “The United States government is actually making a lot more money in revenue from these tariffs. Trump is attributing [this revenue] to China paying the bill. This is just false. They’re not paying it. Americans are paying that bill, and that’s the most frustrating part.”

“The United States government is actually making a lot more money in revenue from these tariffs. Trump is attributing [this revenue] to China paying the bill. This is just false. They’re not paying it. Americans are paying that bill, and that’s the most frustrating part.”—Andy Keller, CEO, Chico Bag Company

KEEN produces or sources material for approximately 30 percent of its shoes in China, but Bowersox estimates the number is closer to 70 percent for its utility footwear (work boots) segment. This has increased the company’s overall tariffs costs, which has, in turn, increased consumer pricing on utility SKUs.

“These KEEN customers need utility footwear to do their jobs,” says Bowersox. “If you work construction, you have to have safety footwear…It’s unfair to impact people who absolutely need that footwear. It’s not an optional item for them.”

COLLATEROL DAMAGE

In a world of 7.7 billion people, the United States is just 328 million people. Keller points out this is a relatively small slice of the global economy: “This tariff thing is misguided. It’s short-term thinking. Ultimately it’s going to cause damage to our economy long term and our position in the world. Our trading partners are changing as a result of it, and we get a smaller slice of the pie. Is that what we want? We want a tiny slice of the pie, or do we want to do business with the rest of the world?”

Keller believes the tariffs move America backward, not forward by attempting to recapture “past manufacturing success instead of focusing on what’s the next opportunity in the future.”

PUSHING BACK EARNS PROMISING RESULTS

Vista Outdoor, based in Anoka, Minnesota, is publicly traded and operates 45 different brands in the sporting and outdoor recreation segments. This diversity makes them better resourced than most companies, with access to more potent data. Vista Outdoor was integral in lobbying in Washington, D.C., and managed to advocate strongly for the company’s brands and the outdoor industry in general, earning 301 tariff exemptions for some of Bushnell, Bell, and Giro’s products.

“We submitted explicit petitions to have our products removed,” says Schuettler. “We engaged directly with the administration as well as with members in offices and committees on both the House side and the Senate side.”

Although tariff exemptions are a welcome sign that the administration is refining its tactics to avoid even more collateral damage, many businesses feel tariffs are generally too blunt a tool. While intellectual property theft is a concern for outdoor companies, Schuettler thinks it’s manageable without tariffs. “As a consumer products company, dealing with counterfeit product is a reality for us,” says Schuettler. “We’ve had instances where we’ve become aware of [counterfeit] situations, and then we work with local law enforcement to address that. We’re actually very active in dealing with and partnering with U.S. customs to provide them education and awareness on our products and on some unique identifiers and characteristics to help them to identify counterfeit that may be coming in.” Schuettler adds that counterfeit isn’t unique or exclusive to China. “Anybody with a factor and a will to do nefarious things,” can pose a threat to American IP.

“I manage a company with a global, forward-thinking approach to software systems and manufacturing techniques that are globally competitive, and our company does not need a tariff protecting it. My observation just in our category is that our U.S. competitors don’t need it. They’re doing quite well and able to compete without tariffs on goods like ours.”—Kelly Nester, CEO, Nester Hosiery

Kelly Nester agrees that tariffs are an unnecessary tool: “I manage a company with a global, forward-thinking approach to software systems and manufacturing techniques that are globally competitive, and our company does not need a tariff protecting it. My observation just in our category is that our U.S. competitors don’t need it. They’re doing quite well and able to compete without tariffs on goods like ours.”

THE WORK CONTINUES

Stories, opinions and anecdotes like those above are the concrete, real-world ammunition American businesses need as they continue to lobby the Trump administration and Congress to remove tariffs that impede growth and stifle innovation. And Harper also sees it as a battle we can fight on two fronts: by educating Congress and by educating consumers.

A few OIA members attended the 2019 Capitol Summit armed with helpful visual aids to show the story and how they’re conveying it to consumers. Black Diamond and Columbia have created product hang tags to educate consumers at point of sale about the implications of tariffs.

 

As Americans begin to understand that these tariffs ultimately hit their pocketbooks in the form of higher product prices at the cash register, they’ll put additional pressure on the administration to abolish the tariffs.

To that end, Harper is encouraging OIA member companies to keep sharing their stories with their customers and with their elected officials. The OIA team is working closely with the U.S. Trade Representative’s office and the Americans for Free Trade Coalition to get outdoor products exempted. Ultimately, though, exemptions are just Band-Aids. The goal is outright repeal of the 301 tariffs.



Share, Advocate and Inspire



 

Help amplify our trade policy work in D.C. Here’s how:

  • LEARN MORE: Finally, join OIA for an in-depth webinar on August 8, 2019 at 1 pm MDT to learn how your company can secure relief from tariffs. 
  • Create a hang tag or other marketing tool that shows the direct impact of the China 301 Tariffs on your product, and share it with your members of Congress.

The proposal to extend tariffs to apparel and footwear comes after the president went through with his plan to increase the additional tariff on products such as backpacks, sports bags, leather ski gloves, camp stoves, camp chairs, bikes and bicycle parts from 10 to 25 percent as of last Friday.  

OIA is also an active member of the Americans for Free Trade coalition. You can find the coalition’s most recent statement on the president’s threat here.  

We will continue to provide you with the latest intelligence as we learn more. Please contact  rharper@outdoorindustry.org with any questions and to learn more about  how you can contact your representatives and share your story through the media.   

You can also talk to your representatives on social media. Here are a few suggested social posts. Don’t forget to tag your members of Congress:

  • The China 301 tariffs are a tax on American businesses and consumers: A few OIA members explain why. http://bit.ly/2Vx1ira
  • #TariffsHurt American Outdoor Businesses, And How. Executives from @Keen, @VistaOutdoor, @ChicoBags and @NesterHosiery shed light on how shifting federal trade policy and unclear priorities are affecting outdoor clothing and gear manufactures. http://bit.ly/2Vx1ira
  • Given the economic and global trade realities of the 21st century, concerns about Chinese abuse of U.S. copyrights and intellectual property are legitimate. But the outdoor industry—like many others—is suffering some collateral damage from the hardline retaliatory tactics. #tariffshurt http://bit.ly/2Vx1ira
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