All I Want for Christmas
If you’re in the market for a bicycle to put under the tree this year, trade policy has made your choices more complicated.
New tariffs on bicycles, components, and gear have increased prices for U.S. importers and consumers and the duties are hard to escape: 94 percent of bicycles and 97 percent of children’s bicycles are imported from China.
On the other hand, a higher and more generous threshold for duty-free online purchases directly from foreign retailers can be a way to escape the tariffs — but it can be a gamble.
As part of a broader “Section 301” trade investigation into China’s trade practices, the United States applies a 10 percent tax on nearly all bike-related imports from China. This tariff is applied on top of the pre-existing 11 percent tariff charged on all imported bicycles from WTO countries with which we don’t have a free trade agreement. (The tariff was set to increase to 25 percent on December 15 but the increase was narrowly avoided by the conclusion of a “Phase One” deal between the United States and China.)
When U.S. bicycle importers pass higher prices on to consumers, small bike shops lose. A National Bureau of Economic Research analysis of large multinational retailers (think Target and Walmart) found these retailers mostly absorbing the duties and taking lower profits. Small-scale importers and boutique bike shops that sell specialized equipment, however, have little choice but to raise prices. That makes it even harder for them to compete with big box stores.
Two Bike Lanes
Bicycle industry executives have urged the U.S. Trade Representative not to include bicycles and bicycle products on the China tariff list. One, Bob Margevicius, explained that the tariffs would hit primarily mid- to lower-valued bikes (as opposed to the high-end performance-oriented bicycles that are imported from Japan and Europe). And, “the majority of important bicycle safety accessories, like helmets, lights, and baby trailers are on the Section 301 tariff list,” he said. There is no significant U.S. production of bicycle safety accessories.
Because consumers are generally price-driven, duties might further encourage American consumers to avoid American sellers by ordering directly from Chinese retailers. Thanks to a 2016 decision by Congress, consumers can buy up to $800 per day of foreign merchandise and avoid paying the duty while enjoying streamlined customs procedures.
There’s just one problem, as some online bargain hunters can tell you: It’s hard to know what you are buying until it shows up at your doorstep. Consumers can end up disappointed that the bike they bought online is of poor quality or even counterfeit. Much worse is finding out that your bike helmet was not made to safety standards.
Folks that take that route, however, are not always happy customers. “They often end up in our retail stores [and] are frustrated,” said Patrick Cunnane, a long-time bicycle executive. The products have warranty issues, quality issues, and safety issues. U.S. manufacturers, even if their name is on the bike, may not stand behind it.
“The counterfeits that we see are shipped one at a time from a foreign, mostly Chinese retailer, to a consumer. So, they are under the radar. The sellers of these products are very hard to find and prosecute,” he said. In other words, you are stuck with the merchandise.
A Bumpy Ride
If you are on the hunt for a new bike or gear this season, you’ve got to decide. You can go online and buy directly from a foreign seller and perhaps avoid the costs of the new tariffs, but buyer beware. Or, you can look for sales at your favorite local shops. A 10 or 20 percent discount could help to offset at least some of the extra duties.
Either way, it’s an example of the distortions that can be introduced into the marketplace by tariffs that affect the choices consumers and businesses – especially small businesses – are forced to make.
Christine McDaniel a former senior economist with the White House Council of Economic Advisers and deputy assistant Treasury secretary for economic policy, is a senior research fellow with the Mercatus Center at George Mason University.