Big Hurt for Little Importers : Trade: Some small American companies say the looming U.S. sanctions against China will hit them the hardest.
When Fernando Pineda read his newspaper earlier this week, he felt like a sacrificial lamb on the altar of U.S.-China trade.
That’s when the vice president of Paraiso Publishers, a Vernon-based greeting card distributor, discovered he may face a tariff of $200,000 on a $200,000 order of Chinese-made greeting cards if the United States and China are unable to resolve an acrimonious dispute over Chinese piracy of American videos, software, music and other products by Feb. 26.
The United States set that deadline for China to meet U.S. demands on intellectual property protections or face the imposition of $1 billion worth of punitive tariffs on an unlikely assortment of goods from China, including greeting cards. China returned the threat, targeting American-made video games, compact discs, alcohol and cigarettes.
The prospect of a massive trade war has brought the two governments back to the negotiating table, with talks planned for next week.
But the mere threat of 100% tariffs has thrown Pineda’s business--and that of countless other importers--into turmoil as they scramble to establish contingency plans in case the talks fail and the largest tariff action in U.S. history goes into effect.
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The Clinton Administration says it worked hard to minimize damage to the U.S. economy by targeting products that were not vital to American manufacturing operations and were available from sources outside China. Absent from the list--which includes answering machines, cellular telephones, athletic shoes and surfboards, as well as greeting cards--are high-volume Chinese imports such as toys, electronic goods and most textiles.
The result is that the businesses hit hardest by such a trade war will be the smallest ones--which often are the most vulnerable. They include Southern California’s small greeting card companies, bicycle importers and other firms on which the impact has been felt well ahead of the deadline.
Resentment is high. For greeting card importer Pineda, who does 35% to 40% of his business in the months leading up to Mother’s Day, the timing couldn’t be worse. He said small businesses dependent on low-cost imports from China have been unfairly singled out to bear the brunt of the trade dispute.
“Let everybody who’s doing business in China pay the price, not just the little guys who can’t afford to have lawyers in Washington, D.C.,” he said angrily.
Pineda has been frantically placing phone calls to Hong Kong and China, hoping to speed up delivery of an order for musical greeting cards due to arrive at the end of the month. He has explored bringing the goods in by air, but that would increase his transportation costs to $20,000 from $2,000.
“We have to react to the worst-case scenario,” said Pineda, whose company sells about $1 million worth of greeting cards a year, primarily to stores catering to Los Angeles’ Latino community. “We cannot afford to take a chance.”
In the case of U.S. bicycle firms, a matter of inches made the difference: Only bikes with wheels of 20 inches or smaller are affected. Two California importers--Western State Imports of Camarillo and Specialized Bicycle Components of Morgan Hill--could be big losers.
Chris Murphy, marketing director for Specialized, said 10% of his company’s annual sales of $160 million are children’s bikes from China that would double in price under the proposed tariffs. He said the company is desperately seeking alternative sources of those bikes in Italy, Japan, Taiwan and other countries.
Even if Specialized is lucky enough to locate another manufacturer, the last-minute change will disrupt supplies for the lucrative summer and fall seasons and add at least 10% to manufacturing costs.
“Our guys are going to be scouring the world trying to find out where to make the next move,” Murphy said. “I don’t know whether it’s back to Taiwan or Malaysia. But we’re committed to kids’ bikes.”
Dianne Wildman, a spokeswoman for the U.S. trade representative’s office, said the Clinton Administration worked closely with industry representatives and held public hearings in an effort to determine where the tariffs would do the least harm to the U.S. economy.
But Wildman and others acknowledged that trade sanctions are a double-edged sword that cannot be imposed on Chinese producers without having negative effects on this side of the Pacific. They include higher duties for some U.S. importers, higher prices for consumers and shortages of goods that can’t be easily replaced. Even importers able to locate alternative sources are likely to pay much higher prices for those goods.
“Somebody’s going to be unhappy about it somewhere along the line,” Wildman said. “But we’re going back to the table, and let’s hope we can avoid the whole process.”
Many larger companies such as Nike, the world’s largest maker of athletic shoes and sportswear, have contingency plans.
Keith Peters, a spokesman for the Beaverton, Ore.-based company, said only a small percentage of Nike’s women’s athletic shoe lines would be affected by the proposed sanctions. And production of those shoes could be shifted from China to Taiwan with little financial repercussion.
A few U.S. firms might even profit, at least in the short run, from the imposition of sanctions. Huffy Corp., the largest U.S. producer of bicycles, does all its manufacturing domestically. If 100% duties are imposed on all Chinese-made bicycles with 20-inch wheels or smaller, the Miamisburg, Ohio-based company is poised to increase production and fill that void.
“We certainly would want to increase our market share if the sanctions went in,” said Pam Whipps, a company spokeswoman.
