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Home / Business / An American bicycle manufacturer weighs the cost and benefits of duty on Chinese goods: NPR

An American bicycle manufacturer weighs the cost and benefits of duty on Chinese goods: NPR



Zakary Pashak founded Detroit Bikes when he moved to Detroit in 2011, at a time when the city was in turmoil.

Courtesy of Melany Hallgren


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Courtesy of Melany Hallgren

Zakary Pashak founded Detroit Bikes when he moved to Detroit in 2011, at a time when the city was in turmoil.

Courtesy of Melany Hallgren

Zakary Pashak is a rare breed. His company Detroit Bikes is one of the few American bicycle manufacturers. Most bicycles come from China.

Sometimes Pashak suffered mockery at fairs. "Somehow grumpy bicycle mechanics come up to me and tell me that my products have stunk, and there's definitely a certain attitude in my industry," he says.

But last September, the mood of the industry suddenly changed. The first round of US tariffs or import taxes increased the cost of Chinese-made bicycles by 10%, and companies saw a potential partner in Detroit Bikes.

"Suddenly I felt like the beauty of the ball or something," says Pashak.

Now, a new 25% tariff applies to imports from China. Like many other American companies, Detroit Bikes searches the 194-page list of taxable Chinese imports. Companies like Detroit Bikes rely on these goods and now face choices that ultimately drive down consumer prices.

Pashak founded the company when he moved to Detroit in 2011, at a time when the city was in turmoil.

] "What drew me to Detroit was the story, the music, the making," he says. "But it was also the state where the city was at that time."

The financial crisis struck automakers and dismissed thousands of workers, many of whom left their homes. Pashak imagined a revival of the city. With these lazy factories and workers he wanted to build a bike made in America. That's how Detroit Bikes was born.

This month, the Trump government raised its taxes on Chinese imports by another 15%. Several companies seeking to avoid these additional costs are considering hiring Detroit Bikes to manufacture bicycles for their brands.

"If these tariffs still apply at the next year, I would expect this to be quite good for my business," he says.

But tariffs are not always good for Detroit bikes. According to Pashak, the implications are so complicated that he is not sure whether they will ultimately help or hurt.

For one thing, his company relies on imported parts – rims, spokes, tires, cranks – most of which come from China. Fares for these vehicles have also risen 25% since last fall, pushing up spending at Detroit Bikes. To counter this, Pashak meticulously checks each part to see if there are any cheaper alternatives elsewhere.

He is investigating parts manufactured in Taiwan for which there are no customs duties. Or Cambodia, of which he says it is "the new hot country … in which everyone wants to hurry".

Companies like Detroit Bikes Respond to Fares in Many Sorts The most important is the search for alternative sources of goods. If Pashak succeeds in finding cheaper replacement parts, he will reduce the cost of his motorcycles, which range from $ 400 to $ 1,250. As a result, the price increase for its customers is being dashed altogether.

Economists refer to this as "substitution" and say it has an impact on how much consumers pay for tariffs Amit Khandelwal, a professor of international business at Columbia University.

Some representatives are relatively easy to find. For example, when China took American soybeans and corn with retaliatory tariffs, buyers quickly turned to South American suppliers.

However, it's much harder to find replacement for things like bicycle chains or software chips. Factories can not simply be gin graded as needed. "In general, the more specialized products often take longer to be replaced," says Khandelwal.

And timing is a key factor. It is unclear whether the tariffs are valid for a week, a month or a year. Businesses, from farmers to retailers, are reluctant to make major changes if they can not plan in the long run.

This restricts opportunities for companies such as Brooklyn Bicycle Co., based in the city of the same name. All parts come from 40 Asian countries, which are then assembled in China before being shipped to the US. Ryan Zagata, president of the company, says it would take about a year to rethink its supply chain and find options outside of China. And "it would be incredibly expensive," he says.

Pashak of Detroit Bikes says he has already worked out some subtle – albeit complicated – workarounds if tariffs are maintained “/>

"I can bring non-tariff Chinese parts to Canada, bring a Cambodian frame to Canada, or mine sending American frames to Canada, laying parts on them and then importing them into the country, "he says. This would relieve him, but take months. In the meantime, tariffs could be dropped next week.

In the short term, for many companies, the simplest solution is to raise prices. Many of the rivals of Detroit bikes relying on imported Chinese bikes say they will have no choice. But Pashak says he is not sure if his company will follow suit.

"It could be strategically better for me to let all my competitors raise their prices because they have to," he says. In the meantime, he will continue to search for options to use the tariffs to his advantage.


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