The company I co-founded, Pedego Electric Bikes, has seen firsthand the effects of U.S. tariffs on products imported from China.
When the first set of new tariffs became effective last year on Aug. 23, it was a week earlier than expected. Pedego had two containers from China come into port the following day and we paid more than $200,000 in unexpected tariffs.
Luckily, our volume of summer sales allowed us to withstand this blow, but it could not be repeated. While other bike companies were forced into raising prices, we worked to keep our prices as stable as possible.
Still, I’m not on the bandwagon that the tariff increases are the worst thing in the world. The reality is much more complex and tariffs can be used as a stimulus for U.S. manufacturing.
When we began Pedego in 2008, we wanted to make our bicycles in the U.S. We discovered that until the 1980s, most bicycles sold in the U.S. were also manufactured domestically. In the 1990s, due to lower labor costs, production shifted from the U.S. to Taiwan and China. Today, more than 95% of all bicycles, electric bicycles, bicycle accessories and bicycle parts sold in the U.S. come from China. That’s why there isn’t a major bicycle company manufacturing in the U.S.
Prior to 2018, the U.S. put an 11% tariff on most bicycles and bicycle parts from China. Electric bicycles paid no tariffs.
The EU Tariffs
Even before President Donald Trump began suggesting higher tariffs, what opened our eyes to moving production out of China came in the spring of last year when the European Union raised its tariff on Chinese-made electric bikes to 79.3%.
The EU has long been adding tariffs to the entire bicycle industry. Non-electric bicycles from China have been subject to anti-dumping duties since 1993 and currently face an import tariff of 48.5%.
European consumers buy around 18 million bicycles per year, and more than 60% are supplied by local manufacturers. According to industry data, bicycle imports from China account for just 4% of the EU market.
The obvious conclusion is that the tariffs have worked in the EU.
When the U.S. a year ago began imposing tariffs on Chinese-made bikes, we accelerated our plans to move our manufacturing entirely out of China, something we accomplished in March. Imports on Chinese-made bicycles and their parts may eventually reach as much as 38%. Electric bicycles have gone from no tariff to 25%.
In addition to moving production to two factories in Vietnam, Pedego is also manufacturing at a factory in Taiwan.
In fact, the entire industry is now either looking to other countries to replace manufacturing in China or examining reshoring production back to the U.S. These options would not have even been considered without the implementation of these new tariffs.
Moving our manufacturing out of China doesn’t mean we will avoid tariffs altogether. For example, we will pay tariffs on our accessories, which are manufactured almost entirely in China, and there are not any other viable manufacturing options at this time. We will also continue to pay tariffs on the Chinese-made bike parts that we import, although the number of Chinese-made parts on Pedego bikes vary by model.
For example, the Pedego Conveyor commuter bike is made of only about 20% Chinese parts. To further reduce the impact of the tariffs, where possible, we are sourcing parts from countries with the lowest tariffs.
No tariff is paid on Pedego bikes now because all are made in Taiwan and Vietnam, but we pay 18% to 21% on parts and accessories that are presently still sourced in China.Â
In the end, we were fortunate that Pedego was the right size and nimble enough to move its production to factories in Vietnam and Taiwan and avoid the new tariffs on Chinese-made parts. Many of our competitors were too large to shift production due to the minimal manufacturing capacity currently available, and our smaller competitors were too small to afford the costs associated with moving or couldn’t find available factories.
Use of Tariffs
When I look at our tariff system, I see many inequities that need to be addressed. For example, the EU imposes a 10% duty on imports from the U.S. while the U.S. duty on imports from the EU is only 2.5%.
I also see how they can be used effectively. For example, the U.S. currently imposes a 25% import tariff on all light trucks, which includes SUVs, the most popular segment of the American auto industry. This tariff explains a large part of the reason that Toyota, Nissan and Mercedes assemble their SUVs in the U.S., creating tens of thousands of good-paying jobs.
It’s hard not to conclude that tariffs create jobs.
As a founding member of the recently formed American Bicycle Reshoring Coalition, Pedego is working to find cost-effective ways to bring bicycle manufacturing and assembly back to the U.S. We are doing all we can to assess assembling our electric bikes here, while also using components manufactured in the U.S.
I believe these tariffs will serve as a catalyst for companies and entire industries to explore manufacturing and assembly right here at home. The time is now, as automation will level the playing field, minimizing the advantage of cheap labor in countries like China.
Whether or not these new tariffs are here to stay is anybody’s guess. The more important question is: How can we bring manufacturing back to the United States?
Editor’s Note: Don DiCostanzo is the CEO of Pedego Electric Bikes. DiCostanzo and Terry Sherry co-founded the No. 1 electric bike company in the United States, according to Navigant Research. He can be reached at don@pedego.com.
