One U.S. Bike-Maker Weighs Costs And Benefit Of Tariffs On Chinese Goods Detroit Bikes, a rare domestic maker of bicycles, could see business increase as a result of increased U.S. tariffs on Chinese bikes. But imported parts it relies on are also subject to higher taxes.
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For One U.S. Bike-Maker, Tariffs Are A Mixed Bag

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For One U.S. Bike-Maker, Tariffs Are A Mixed Bag

For One U.S. Bike-Maker, Tariffs Are A Mixed Bag

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MICHEL MARTIN, HOST:

Back to the ongoing trade conflict with China. The list of Chinese imports to the U.S. subject to increased tariffs runs 194 pages long. It includes things like frozen fish filets and bamboo furniture parts. The U.S. companies that depend on those items are evaluating what this means for their businesses, and that will determine how much consumers will pay. NPR's Yuki Noguchi has this report on how one business, a U.S. bike maker, is affected by tariffs in ways you might not expect.

YUKI NOGUCHI, BYLINE: When Zakary Pashak I moved to Detroit in 2011, the city was reeling. But Pashak saw opportunity.

ZAKARY PASHAK: What drew me to Detroit was the history, the music, the manufacturing. But, I mean, it was also the state that the city was in at that time.

NOGUCHI: The financial crisis had slammed automakers. Thousands were laid off. Many of those workers abandoned their homes. Pashak envisioned an urban revival. Using those idle factories and workers, he wanted to build an American-made bicycle. That's how Detroit Bikes was born. As a domestic bike maker, Pashak is in a tiny minority. Nearly all bicycles sold in the U.S., 94%, come from China. At times, he endured ridicule at trade shows.

PASHAK: I'd get, you know, kind of surly bike mechanics coming up and telling me that my product stunk or, you know, whatever. There's definitely a fair bit of attitude in my industry.

NOGUCHI: But last September, the industry's tune abruptly changed. The first round of tariffs upped the cost of imported Chinese bikes by 10%.

PASHAK: All of a sudden, I felt like, you know, the belle of the ball or something.

NOGUCHI: Companies saw this rare U.S. bike maker as a potential partner. This month, the Trump administration upped tariffs - basically import taxes - by an additional 15%. Now several companies seeking to avoid those fees are considering hiring Detroit Bikes to manufacture bikes for their brands.

PASHAK: If these tariffs are still in place next year at this time, I would anticipate that would probably be quite good for my business.

NOGUCHI: But the tariffs aren't all good for Detroit Bikes. In fact, Pashak says the effects are so convoluted he's not sure yet whether they will ultimately help or hurt. For one thing, Detroit Bikes relies on imported parts, the lion's share of which come from China.

PASHAK: Like, the rims, spokes, the tires, the tubes...

NOGUCHI: Tariffs on those also increased 25%, driving up Detroit Bikes' expenses. To counteract that, Pashak is painstakingly evaluating each part to see whether cheaper alternatives are available elsewhere.

PASHAK: We'd want to be buying from Taiwan. Cambodia's sort of a new game, but it's sort of the new, you know, hot country, I guess, that everyone's trying to rush into.

NOGUCHI: Businesses like Detroit Bikes react to tariffs in many ways. Finding alternate sources of goods is a significant one. If Pashak succeeds in finding cheaper substitute parts, he keeps costs down on his $500 bikes. That then blunts the overall price increase for his customers. Economists like Amit Khandelwal call this substitution.

AMIT KHANDELWAL: The impacts of these wars depend heavily on the substitution effect.

NOGUCHI: Khandelwal teaches international business at Columbia University. He says some substitutes are relatively easy to find. When China slapped retaliatory tariffs on American soybeans and corn, for example, buyers quickly turned to suppliers in South America. But finding replacements for things like bike chains or software chips is considerably harder. You can't just gin up a factory.

KHANDELWAL: Generally, the more specialized product often take longer to substitute.

NOGUCHI: And timing is a key factor here. It's unclear whether the tariffs will remain for a week, a month or years. Businesses I talked to, from farmers to retailers, are reluctant to make big changes when they can't plan for the long haul. Zakary Pashak says he's already mapped out some ingenious - if complicated - workarounds if the tariffs stay put. It might involve a web of countries.

PASHAK: I can bring in Chinese parts to Canada at no tariff code, bring in a Cambodian frame to Canada, or ship my American frames up to Canada, put the parts on them, and then import them into the country.

NOGUCHI: Doing so would relieve his tariff burden but would take months. In the meantime, he says tariffs might go away next week. So the easiest solution for many companies in the short run is to raise prices. Many of Detroit Bikes' rivals who rely on imported Chinese bikes say they'll have no choice. But Pashak says he's not sure if his company will follow suit.

PASHAK: It might be better for me strategically just to let all my competitors raise their prices because they have to.

NOGUCHI: He says he'll continue exploring options to make the tariffs work to his advantage. Yuki Noguchi, NPR News.

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