PEABODY — What do a bike shop, a Gloucester seafood processor, a Newburyport lingerie maker and a worldwide athletic shoe company have in common?
They are all nervous about a proposed 25% hike in tariffs on an additional $300 billion worth of products imported from China — a measure that President Donald Trump supports to tackle what is seen as unfair trade practices.
Marty Miserandino, 46, of Hamilton — the co-owner of a local high-end bicycle shop, Fit Werx 2 of Peabody — says it's too soon to say how the new tariffs on things like bike lights, jerseys and locks might impact business.
For instance, Fit Werx does not sell kids' bikes, which are part of the latest round of tariffs. Bicycles made in China were recently subjected to a 25% tariff, and most bicycles that come into the United States are made there. This latest round would cover bicycle accessories not covered in the earlier round of tariffs.
"We've been hearing about tariffs for a while now," Miserandino said. "Last September, they announced their first round of tariffs and all the bike manufacturers started reaching out to the dealers and saying: 'Hey, change is coming.'"
This was back when the tariff was 10%, but it has since been increased to 25% on bicycles, among a list of $250 billion worth of Chinese goods subject to higher tariffs.
Miserandino said the tariffs created uncertainty about price, and bike manufacturers worked with factories in Asia to bring the cost down, so it did not immediately hit the dealers or consumers. Now, bike shops are in the thick of their selling season so they are not sure how this new round of tariffs may play out.
"Everybody's trying to figure it out on the fly," he said. "We just don't know what's going to happen."
If the tariffs stick, they will be passed on to the manufacturer, dealer and, ultimately, bike riders, "and we are all going to eat it together," he said.
Last week and this, the Office of the U.S. Trade Representative in Washington, D.C., held hearings on the proposed tariff list, and some local companies testified about their impacts.
One of those scheduled to testify was intimate apparel designer Jacalyn Bennett, founder of Bennett & Company of Newburyport.
According to a letter from New York attorney Alan Klestadt, the company has a state-of-the-art production facility in China, which dates back to 1988. It employs 760 workers. About 95% of what this factory makes is shipped to the United States, and Bennett & Company pays the import duties.
The new tariffs "would have a devastating effect on the company," Klestadt wrote. The tariffs could lead to lower sales, which in turn could lead to a loss of jobs. The company's investment in its China factory would become worthless.
"As the manufacturer and importer of the product, it would be impossible for Bennett & Company to absorb the extra 25% tariffs," Klestadt wrote.
China has certain advantages, such as being the world's silk producer, and it has a skilled workforce that can't be found elsewhere. It would take two years for Bennett & Company to ramp up a new factory in another country. The company employs about 40 people in Newburyport, and it planned to hire five to 10 staff this year.
The company also noted that while the goal of stopping intellectual property transfer was important, this was not relevant to its China operations. Attempts to reach Bennett for further comment were unsuccessful.
Fish on the list
Gorton's Inc. of Gloucester was among 10 U.S. seafood manufacturers and importers to testify about what the tariffs might do to their supply chain.
Collectively, the companies represent nearly half of the processed cod, pollock, haddock, salmon, ocean perch and flatfish imported to the United States from China annually.
Certain seafood products, such as Alaska pollock, were exempted from tariffs back in September, but this fish species is back on the list.
"Gorton's testimony will focus on the disruption such a reversal will cause for American seafood processing workers and the American families they help feed," said a June 6 letter from Lisa Webb, Gorton's vice president of operations. The company provides more than 440 jobs to American workers, Webb said.
An attempt to get further comment from the company was unsuccessful last week.
While the fish species involved are not caught in China, the country is the reprocessing hub for all these U.S. companies, and it would take years — not weeks — to find new processing plants. In the meantime, the tariffs would hurt American importers, processors, distributors, restaurants and consumers more than they would punish Chinese entities, the companies said.
"Our companies have invested heavily over the past 25 years in the primary processing infrastructure and capabilities in China," said a letter from Bill DiMento, vice president of corporate sustainability and government affairs at High Liner Foods in Portsmouth, New Hampshire. "We are actively seeking to establish alternative supply chains outside of China, but cannot do so within the established timeline without causing immediate and irreparable harm to the health of our business and to the wallets of American consumers."
Boston-based New Balance Athletics Inc., with an office in Lawrence and plans to open an advanced manufacturing facility in Methuen, also submitted testimony.
New Balance, which manufactures its shoes in New England in five factories employing more than 1,600 people, lauded "the overall goal of leveling the playing field for American exporters to China." It welcomed the administration's investigation into intellectual property theft as part of its fight against trademark infringement in China.
But, New Balance said, punitive tariffs will not help.
The problem is while New Balance continues to make shoes here, when the footwear industry went to China, "it took the domestic supply chain with it."
U.S. suppliers can't supply enough "soles, inserts, kits and uppers" and other components to support its five New England factories. Its domestic manufacturing also faces threats from retaliatory tariffs China imposed on its footwear. The company is seeking to find sources of materials and components outside China.
"The proposed Tranche 4 tariffs will risk our company's overall financial health, which will in turn limit our ability to maintain and re-invest in our American factories," New Balance said.
Salem State Political Science Professor Kanishkan Sathasivam said the problems outlined by the companies are a result of the way the globalized economy works. This was not the case perhaps 30 years ago, when products were made within one country, so tariffs could be used to change another country's behavior. That is no longer the case.
It's why the use of tariffs as a tool to get another country to change its behavior is difficult at best.
"Inevitably, any tariff action is going to have a negative impact on other countries as well as your own," he said. The goal of stopping technology transfers from American companies to China is serious issue. The Chinese tactic on the issue of intellectual property theft has been to negotiate without end and stall.
The United States can't force the Chinese to give up their intellectual property because they do not have much to offer. One way the issue could be solved would be for Congress to pass a law to prevent technological transfers to Chinese companies, which may cause consternation among the business community, but it may also force China to deal with the issue once and for all.
U.S. Rep. Seth Moulton, D-Salem, said a test of trade deal is whether it benefits American consumers and creates more jobs at home. Trump's tariffs fail that test.
"I have every confidence in American business being able to compete, but they have to have a level playing field," said Moulton, who is in the midst of a run for the 2020 Democratic presidential nomination.
"It's a great example of how the president has no strategy here. He doesn't understand tariffs are a tax," said Moulton, who said Massachusetts businesses have already shelled out $199 million in additional tariffs. Trade supports 945,100 jobs in the Bay State, but a trade war could threaten 50,500 jobs in the Bay State tied to trade.
Moulton said one company in the 6th District, the Bedford-based high-tech company iRobot, which makes the Roomba vacuum cleaner, has had to raise prices. This in turn could impact sales if consumers don't buy as many robotic vacuum cleaners.
It's not always clear that trade deals work, Moulton said.
An example of that comes from the opioid epidemic. About 80% of the fentanyl comes from China. Back in 2014, Moulton said China signed a deal to stop importing fentanyl, but between 2015 and 2016, the United States stopped nearly 1,100 shipments of the synthetic opioid, while China stopped four.