China and tariffs

[sal]

As many of you know (or should now) that there are tariffs being created for many products made in China, as well as other countries. You also know that we make a number of products in China, including knives and sharpening parts. We're already experiencing these tariffs on some of the steels we import. Eventually we are going to be hit with up to 25% in tariffs for our Chinese made models. Naturally we will have to pass on those costs. I would like to know your thoughts on this?

sal

[500Nitro]

Sal

I class Government business taxes, tariffs, import duties, VAT/GST, Sales tax etc as part of doing business - not that I agree with all but best just get on with doing business.

A 25% tariff on import is a big new cost, even just the raw material.

Will the market bare a bigger increase than you normally have each year.

Are the tariffs ONLY on Chinese products ?
(I keep abreast of US business and have seen what Trump has said but not being US based don't fully read it).

Does shifting production to another 'non tariff' location feasible ? Which I know is a big decision.

Good luck anyway, keep doing what you do do well.

[Sumdumguy]

Doesn't sound like we have much of a choice, will it affect LC200N models from Taichung? I hope not.

Either way, feel free to make LC200N the majority, I would take that on most any knife. It has beat out pretty much everything else in my lineup. I have and will continue to buy every LC200N knive you make(although I still don't have a tusk).

[Spydergirl88]

I guess it's too soon to tell but it might just be the push you need to make the Alcyone and Polestar elsewhere? Will be following the tariff fallout closely, wonder what this means for the Byrd line

[SF Native]

Sal, we are dangerously close to taking about politics.
You have to treat your business like a business. If they go up in price, you pass these costs on. If there is a resolution sometime soon, you could make a correction then.

Also curious if this is just the budget knives made in China and what imported steel is getting a terrif. Products from japan? Taiwan?

[gull wing]

I say, do what you have to do.
I'm not likely to stop buying knives.

[holeshot]

My first though is that it sucks but then I think about those folks who work for GM. I'm good with paying more for the quality products Spyderco produces regardless of the origin of manufacture.

[sal]

Hi SF,

It is close to politics, but I think we can discuss it without getting into politics.

I believe the main target is China, but limited. We've not felt it in Japan or Taiwan. We are paying more for LC200N.

sal

[Water Bug]

To me, Sal, tariffs are just part of doing business... they certainly aren't your fault and there's not much you can do about them. Having to pass on these additional tariff costs on to the ELU is an unfortunate part of doing business... you don't like doing it and the ELUs certainly don't like paying it, but that's just part of doing business. And, as already noted, if there are improvements on the issue, you can make corrections on those costs to the ELU.

Do what you have to do.

[SF Native]

We are paying more for LC200N.

Oh no. That’s a bummer. I love that steel. Thanks for offering it.

[wrdwrght]

I don’t see how this topic is anything but political.

So, I’ll say only that I intend to buy Spydies until some internal threshold kicks in and tells me nope, too much, game over.

[ferider]

Well, the natural question is: for the additional 25% in end-user price, could you manufacture these models with enough ROI in the US, Sal ?

[Naperville]

I stand with the tariffs against China and will continue to buy knives whatever they may cost.

@Sal you've been at this for a long time and cool heads will prevail all the way around. Move production wherever necessary and pass on the costs is all that you can do.

[BornIn1500]

I think an increase in the China line tarriffs/prices may lead to an increase in Golden, CO line sales. Might be wishful thinking, though.

[500Nitro]

Well, the natural question is: for the additional 25% in end-user price, could you manufacture these models with enough ROI in the US, Sal ?

25% import tariff doesn't necessarily relate to a 25% increase in the retail cost price.

My understanding of the 25% import tariff is it is on the import cost price. I'm happy to be corrected.

[p_atrick]

Well, the natural question is: for the additional 25% in end-user price, could you manufacture these models with enough ROI in the US, Sal ?

Wouldn't there be a substantial upfront cost in shifting production from China to Golden? Without expanding capacity at Golden, couldn't the influx of new models cause delays in making the Golden knives we already know and love (i.e. would the US production of the Tenacious line lead to delays in the production of PM2, Military, Native, Lil Native sprints)?

Sounds like a big problem with no easy solution. I'd rather pay more and see Spyderco continue to do well financially instead of eating these costs and hoping for better days in the future.

[Archimedes]

Makes no difference to me.

If I really want a knife I always find a way to afford it. If the product is good another 50 bucks on a 200 dollar knife won't stop me.

Plus, I like to see jobs created here.

[Eli Chaps]

I work in manufacturing in an industry that only a handful of companies are involved in.

China is rapidly emerging as an extremely aggressive competitor.

The tariffs are absolutely becoming an issue for our business. It is scary in a sense, but right now, I think it is the right thing to do and something has to be done.

When the Chinese government will subsidize a major manufacturing facility, all equipment, and employee pay to the tune of 70-80% and then manipulate the currency, strangle raw materials (yes they own vast amounts around the world), OUTRIGHT STEAL and reverse engineer any product they can get their hands on, refuse to enforce non-Chinese company patents, and so on, we have to do something. And it isn't just the US, this is an ever increasing concern for numerous countries.

It is not a sustainable long-term position for the Chinese and they know that. But they can wreak mass havoc and hope to capture massive swaths of various industries so when they too have to start increasing prices to recoup, they will be in a position literally too big to fail.

As we all know and Sal is talking about, in the general consumer product market, it is extremely difficult to compete if you don't at least have some products coming out of China. Far too many consumers demand ultra-low prices and some retailers require price limits. When Buck Knives moved up here, there was a lot of talk about them bringing all production back to the new plant. But they couldn't because WalMart's price requirements just to stock a certain percentage of their product were so low that they had to manufacture in China. Leastwise that's what the owner said in an interview.

I guess the question I have Sal is, can your Chinese made products withstand the cost increase? It has to be largely a dedicated, targeted consumer group you're after with the budget and byrd lines and that is a pretty crowded field I would think. I think you guys do awesome and provide a quality product in those ranges and I'm always recommending a byrd of one sort or another to new knife folks. But if the cost jacks 20+%, will those customers till see the quality and have the perceived value that they do now when compared to other knives that might remain at the lower prices? It's really a rhetorical question, because I know it is a "we'll have to see" kind of a thing and maybe something you might not want to discuss.

Personally, I still think a byrd Robin at $25 vs. $20 is still an excellent value but a Tenacious at $75 might be a tougher sell.

[500Nitro]

Eli Chaps

Spot on

May I add "dumping excess product at or below cost in worldwide or specific markets, thereby making business unsustainable'.

They do it to Aus as well.

[DSK]

I am always willing to pay more for an American made product, if production has to be moved to the States. If the costs of a Chinese knife end up rivaling a US knife, I'll almost certainly choose the American one if quality is comparable.

If production stays in China but costs increase 25%, that still isn't terrible on things like the Byrd line. Cost of doing business. When the increase makes those knives approach the American ones, I'm spending a few extra bucks to support domestic employees.

Maybe Spyderco could make the best of it and launch a series of knives with American steel, American parts, all made here. I'm sure you already have those, but really market it as such and make it clear you are embracing American labor and making lemonade out of lemons.