Escalating trade war hits home for many local businesses
Representative Seth Moulton had just dropped out of the presidential race, a decision he was bound to be asked about during a town hall-style meeting at iRobot’s headquarters in Bedford earlier this week.
But you know what issue dominated the conversation in the packed room? The escalating trade fight with China.
The tariff questions, it turns out, were much tougher to answer.
The congressman’s session with hundreds of iRobot employees took place Tuesday. By Thursday morning, some hopeful news had emerged out of Washington and Beijing: Diplomats from both sides would meet in October, to make another try at a trade agreement.
However, iRobot chief executive Colin Angle has heard this before. He says the China tariffs have put his company “in crisis mode.” He’s encouraged that negotiations will resume, but has no reason to believe the tariffs will go away anytime soon. Instead, it’s time to batten down the hatches.
The situation at iRobot is playing out, time and again, at businesses big and small. Moulton visited two others in his north-of-Boston district on Tuesday — a bike manufacturer and a cheese store. After learning more about their plights, the Democrat made sure to publicly lay the blame on President Trump. But put politics aside: Their situations illustrate just what’s at stake for our local economy in these trade wars.
Parlee Cycles
The sticker shock is severe at this bike manufacturer in downtown Beverly. While Parlee makes some of its frames on site, it gets most of them from China. The applicable US tariff rose from a standard 4 percent of the frame’s cost a year ago (rounding up), to 14 percent last fall, and then to 29 percent. In October, it goes to 34 percent. Parlee makes carbon-fiber bikes, and the tariff adds hundreds of dollars to the cost of one of its high-end frames from China.
Who pays? Well, Parlee tried to spread the pain a bit. Moving more manufacturing to the United States is cost-prohibitive. So Parlee raised its prices, by 2 to 13 percent at retail.
It also held off on hiring three people this year, because of the six-figure hit to its bottom line. The workforce, 20-plus people, remains intact for now. It’s a good thing that sales are growing, thanks in large part to the excitement about its gravel bikes, but it has been a tough slog.
CEO Isabel Parlee says: “I feel like ‘we the people’ are under threat.”
IRobot
The consumer robotics company currently makes all of its products at third-party factories in China, but some work will shift to a plant in Malaysia by year’s end. Still, Angle says the higher-end robot work will stay in China for now, because of the sector’s extensive equipment and expertise there.
His company, which employs nearly 700 people at the Bedford headquarters, didn’t have any tariffs on its China products a year ago. Now, there’s a new 25 percent tax on everything, soon to be 30 percent. The company has applied to the federal government for an exemption but doesn’t expect an answer until next summer.
In July, Angle dramatically pared back the company’s earnings forecast for the year as a result. He has put the brakes on hiring and curbed discretionary spending. The company adopted price increases on nearly all products, averaging almost 10 percent, in July — increases that may significantly affect iRobot’s ability to compete in global markets against Chinese rivals such as Ecovacs and Roborock.
No layoffs in Bedford so far, but employees are understandably worried. Investors are, too: The stock trades at $63 a share today, down from $131 in early March.
Cheese Shop of Salem
This store’s fate hinges on a different tariff fight, one involving the United States and the European Union over government subsidies for Airbus and Boeing.
Retaliatory tariffs on a wide range of European exports — including cheeses, olives, and pastas — could cause costs to double here, if the World Trade Organization goes along with a Trump administration proposal.
Manager Brie Hurd says roughly half of the cheeses and one-third of grocery items could be affected at her store, where seven full-timers work. (Yes, Brie is her real first name, and she is asked about it every day.) Aside from requesting shoppers to register their displeasure with the Office of the United States Trade Representative, Hurd says she is trying to develop a new purchasing strategy with suppliers in advance of the all-important holiday season. Significant price increases or inventory shortages could be coming.
These trade tiffs may feel esoteric when we scan the headlines, a bit removed from our everyday lives. But to many local businesspeople, the impacts are all too real.