Saturday, July 7, 2018

Tariffs -- all good, for now, but what can cyclists buying overseas do?


Sam pointed out, with a link to Pinkbike, that this trade war is growing.  And so it is.  The "second tranche" of tariffs on Chinese goods, finalized 6 July, is here (link to the Office of the US Trade Representative).  It looks like bikes (listed on the schedule as 8712.XX.XXXX) dodged the bullet again.

Sucks if you need a moped or a refrigerated vessel, though.
All this isn't over.  I'm still holding my breath . . .


My post from 18 months ago about importing bikes seems worth revisiting in light of trade wars underway or coming.  A refresher:

Imports are subject to tariffs

This is the case unless we have a free trade pact in place.  We (the US) have historically had one with Mexico and Canada, called NAFTA.  The US recently nearly entered such pacts with European countries (Trans-Atlantic Trade and Investment Partnership) and Asian countries excepting China (Trans-Pacific Partnership).  There can always be a bilateral (two-party, rather than multi-party) agreement under which tariffs are limited or eliminated. There are a handful of other tariff-free import opportunities that relate to international development goals and tend to be regarding countries that are not threats for trade imbalances (i.e., they don't produce much that American consumers want to buy).  

There is a limited exception for personal use importing, recently raised to $800.  The idea is that you can mail order a suit from Saville Row or bring a case of wine back with you from Hungary.  I rely on this when ordering merch. from Vulpine.  $800 does not do much for a bicycle purchase in the modern day, of course.

On my most recent bicycle import, from the UK, I paid a tariff on every dollar above $800.  The bike (a used 2016 Focus Izalco Max Disc) was a good deal at $2700 or so.  I paid a 5.5% tariff for reasons I explain below -- with shipping, this super sweet rig was in my basement for not much more than $3000, substantially less than I could find it domestically.
Low-duty import.

Are bike imports in trouble?

The new tariff schedule targeting China, from the office of the US Trade Representative, includes a lot of random items -- including, I kid you not, spacecraft -- but thankfully so far excludes bicycles.  Motorcycles and mopeds of all sizes are covered, as are other motor vehicles.  Bicycles have escaped - so far.

Still, how to minimize that tariff when importing a bicycle?

Tariff engineering

Tariff engineering is a process of engineering a product to avoid or to minimize tariffs.  The Washington Post recently reported  on Ford's decision to ship its cargo vans to the US with a rear seat, immediately removed after "official entry" into the US -- avoiding a much higher tariff rate on cargo vehicles that does not apply to passenger vehicles.  According to the Post, this is the same explanation for the silly rear seats in the '80s era Subaru Brat.  (Showing how much this matters: the general tariff on passenger vehicles, in the absence of an exception, is 2.5% under general classification 8703 in the Harmonized Tariff Schedule.  The general tariff on cargo vehicles, classified on the Harmonized Schedule at 8704.21.00, is 25%.  These tariffs are assessed on the item's "value," which according to the General Agreement on Tariffs and Trade is "the price actually paid or payable for the goods when sold for export to the country of importation."  Assuming a $20,000 price from the factory on a Ford cargo van, this is a $4500 swing ($5000 at 25%, $500 at 2.5%).
Subaru Brat.  Washington Post argues those rear-facing seats are an example of "tariff engineering."  Image from
There are plenty of options for tariff engineering for bicycle imports as well.  I pointed out in my analysis of importing the Focus Izalco that wheel size defines import duties.  (I use "import duties" interchangeably with "tariffs" in this analysis.). I reproduce below the screenshot from the Harmonized Tariff Schedule that defines these duties:
This portion of the HTS has not changed.
The key, obviously, is to have your bicycle classified as subject to a 5.5% tariff rather than an 11% tariff, and even better if you can pull off the 3.7% tariff for "other cycles."  Note that both weight and wheel size matter, although the weight filter, at 16.3 kg (just shy of 36 lbs.) is unlikely to matter much to this author.  The goal is to classify your bike as having large wheels.

It is fortunately ambiguous whether the tire is included in the measurement.  When I ordered the Focus, I asked the shipper to write prominently on the outside of the package the customs classification for a larger-than-63.5" wheel, or 8712.00.25 -- and sure enough I paid 5.5% on that import.  My success was not universal -- Sam ordered his Pinnacle Arkose at the same time and paid 11%.  I assume my customs officer did not bother to open the package to look and to measure.  If he or she did look, it is possible the measurement included the tires, which would get even a normal road bike past 63.5 cm.

64 cm wheels?

One question, which the Ford rear-seat example raises, is whether one could ship a bike with cartoonishly large wheels mounted, with the intent that the wheels be removed and scrapped on receipt.  It is normal to replace stock wheels on a nice bike in any event.  I did so on the Focus although the manufacturer spec. was known to be a credible training wheelset. 

What about a 64cm wheel with a minimalist tire to prove it is a real wheel?  With disc brakes such a bike could even be technically ridable.  And with modern bikes built for large tires, clearance would not be a problem.  (62 cm wheel with 38mm tire will larger than a 64cm wheel with a 20cm tire.)
Note that the Penny Farthing would not work because *both wheels* must exceed 63.5 cm.  This one would qualify.  Picture from
Of course, shipping bikes with wheels intending to be tossed means lots of wheels in the scrap heap.  What a waste.  But it would also be possible to ship all those wheels back for reuse.  Shops could send a monthly pallet of wheels to Taiwan (or wherever).  (One would have to consider the import tariffs on wheels in Taiwan, but with a minimal valuation -- below, I guess $50 per wheelset -- it may be functionally irrelevant.)

(Bikes would need wheels too, of course, after the shipped 64cm set are trashed.  The HTS does not seem to have a designation for assembled bicycle wheels.  Rates are 5% for rims, 10% for spokes, and 0% for hubs -- assuming the rate for the wheels is the aggregate, and the value in wheels is hubs-rims-spokes in that order, the rate is at or less than 5%, for wheels sold separately from the bicycle.)

Is it a business model?

The analysis is (I think) simple.  First, are bikes generally being taxed at 11% on import or 5.5%?  If my experience is normal and Sam's aberrant, there is nothing to be achieved.  But if Sam's is normal, we are talking about 5.5% in savings on a bike - with modern prices at $5000 or greater, that is $250 per bike in savings.

Second, what would it cost to create a stock of 64cm wheels made for throw-away?  It must be well less than $50/set, once machines are tooled for the purpose.

Third, how long will the 63.5cm mark govern?  If long enough to cover the cost of the machine re-tooling (on an expectation basis), this is a business worth considering.

NOTE:   It is of course more complicated than this.  There are, for example, questions of where the bike is actually from that I discuss in the prior post -- the best case scenario is to import from Canada or Mexico under NAFTA.  A bicycle brand whose primary work is buying overseas and selling in the US might consider a more creative work-around.  My discussion here relates to importing bicycles whole from overseas.


sam said...

Interesting thoughts in this post. I find it odd that "lightweight" bikes (where "light" means under ~35 pounds) get a 5.5% tariff while heavier bikes are 11%. This seems to target, specifically, delivery bikes for higher tariffs. Though no doubt a handful of DH mountain bikes could get caught up in that rate.

I wonder if one could arbitrage tariffs across different products by selling "bundles". Sell a $2000 bicycle for $1000 as part of a bundle deal that comes with a $1000 tube (assuming tubes have a lower tariff).

Of course there's no doubt verbiage that prevents shipping through one of the "free" countries listed in the second-to-right column.

I suppose at the end of the day, 5.5% is low enough that few people will engage in the monkey business we see with delivery vans.

Max said...

I think you can do a lot if nobody spends the time looking, kind of like my claiming a bike was a "racing wheelchair" for baggage fee purposes. The problem is that the customs officer is king unless you want to go to court for a ruling. Anything too cute would work until it didn't, I would guess.

It is easy to see why the tariff engineering examples come from the auto industry, where the dollars at stake are well worth somebody hiring counsel to make a challenge. Unless the bike industry joined forces it seems unlikely here. (Though I have thought about buying your claim for overpayment of taxes on the Arkose and trying to get some of your tariff recouped, just to see how one does it.)