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Pro Audio Weighs the Troubles with Tariffs

By Steve Harvey. Manufacturers feel the pressure as the U.S. trade war with China heats up.

New York, NY (June 26, 2019)—With the threat of tariffs on an additional $325 Billion of goods imported from China hanging over the United States, representatives from manufacturers, retailers, trade associations, labor organizations and other interested parties went before the Office of the U.S. Trade Representative (USTR) at the end of June to plead for relief. Meanwhile, as the three previous rounds of tariffs start to bite, U.S. pro audio product manufacturers are eyeing potential price increases as they see their already slim profit margins being eroded.

“Our metalwork is all made in Texas,” says Josh Thomas, general manager and co-founder of Rupert Neve Designs, which is based in that state’s Hill Country. When the tariffs went into effect on imported steel, he says, American steel suppliers raised their prices by 18 percent. “There aren’t margins in pro audio for that to be absorbed.”

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EveAnna Manley, president and co-founder of Manley Laboratories, who has seen similar hikes in metalwork prices, is concerned about President Trump’s threat to levy tariffs against Mexico and his renegotiation of the North American Free Trade Agreement. “We count on NAFTA because we do work with a maquiladora,” she says, referring to a factory in Mexico run by a foreign company that exports its products to that company’s country. “My whole shop is basically Mexican, and we all speak Spanish, so we have great communication with that shop,” which is run by a contractor and stuffs Manley’s circuit boards.

Manley products are made almost entirely in the United States, bar one microphone capsule, but electronic components may come from China or, in the case of Bourns potentiometers, from Mexico. Manley says there are no good alternatives: “I don’t think there is an American-made potentiometer. Besides, all the rest are made in China. Plus, Bourns pots are the best.”

“America basically walked away from building silicon devices two and a half decades ago,” says Thomas, and they are generally made only in China now. “Texas Instruments in Dallas isn’t going to suddenly switch on a line and start making chips again.”

In the lead up to the seven-day USTR hearings in Washington, D.C., NAMM encouraged members to file comments with the agency, providing sample letters and hosting a webinar on registering exceptions and registering to testify. While no pro audio companies were subsequently called to make their case in person at the hearings—that list did include Christie Digital Systems and the Consumer Technology Association—several manufacturers filed public comments, including Shure, Nady Systems, Bose and PreSonus.

All the companies arguing for their Chinese-made pro audio products to be excluded from the proposed Section 301 tariffs (named for a 1974 Trade Act) essentially make the same case. The tariffs will not cause China to change its behavior, they argue. Since PreSonus handles all aspects of R&D in the United States, notes director of operations Jon Ross, “Manufacturing operations in China are not considered to be an attractive target for intellectual property theft by the Chinese government”—behavior that Trump seeks to punish through his tariffs.

As they also note, there are currently no U.S.-made alternatives for many of the component parts of their products. In addition, manufacturers moved some operations to China to remain competitive. Edward Van Waes, director of sales for Nady, writes, “As most electronics manufacturing has moved to China in order for more American families to afford to purchase these products, there are now currently no other options for the public to purchase U.S.-made wireless microphone systems, and certainly not at the budget Nady provides.”

This fourth wave of tariffs is expected to further impact manufacturers’ bottom lines, requiring them to raise prices, in turn causing domestic customers to buy products made outside the United States. Implicit in that move is the risk that customers will not return to their former buying habits. As reported in The Atlantic, not only do China’s retaliatory tariffs target certain U.S. products, but the country significantly reduces the tariffs on those same products from countries including Canada, Japan, Brazil and Europe. Trading relationships could be irrevocably damaged as a result.

“I’m not sure Trump understands that tariffs are something that U.S. importers and consumers pay, and not something that the Chinese company pays when they’re exporting the goods,” says Thomas. If the tariffs remain in place, he says, “Our margins will shrink, and the consumer will pay more.”

On the flip side, China’s tariffs on U.S. goods have already had a significant impact on export sales. “China was my second-largest export market last year,” Thomas reports. “This year, they’re not even in the top 10—and it’s because of the tariffs.”

Political observers predict that Trump will delay the threatened tariffs until after he and China’s President Xi meet at the G20 Summit in Japan at the end of June. That delay could be extended if, as might be expected, they don’t come to a definitive agreement at that one meeting, even with their advisors laying the groundwork ahead of time. And, of course, everything could change with a single tweet.

The constantly shifting ground makes it difficult to do business, comments Thomas. “I can’t create uncertainty with my distributors and raise the prices, then in three weeks raise them again.” Yet his company won’t be able to keep absorbing its higher manufacturing costs for long. “There will be an immediate short-term knock-on effect on pricing,” he says.

Manley reports that her suppliers importing goods from China have absorbed the increase in their landed costs where they can. “In some cases, they add a line item for the tariff charge, but there comes a point where they have to bump up their prices. Then we have to bump up the prices. But,” she says, “the customer pays.”

Thus far, says Manley, “We’ve had to get creative to retain profitability.” Nonetheless, sooner or later, the company will have to hike its prices, she believes.

The impact of the tariffs extends beyond the individual pro audio manufacturers. Manley, who is responsible for 25 employees at her facility in Chino, CA, observes, “There’s also the metal shop down the street; we’re a huge part of that company’s throughput, and there are all the support industries” providing services such as anodizing and powder-coating.

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Manley went public discussing the issue after losing a sale to a Chinese distributor due to China’s tariffs. “I’ve been vocal on Facebook because I know some people learn from what I post,” she says. She has also written to her state senator and local congressperson, and encourages everyone to do likewise.

“I’ve done everything any citizen can do. All we can do is make our voices known,” she says. “And vote.”

Rupert Neve Designs •

Manley Laboratories •

Nady Systems •

PreSonus •