How the growing U.S.-China trade war is forcing tech and product companies to get creative – 10minmail

A cargo ship pulls into Seattle’s Elliott Bay. (10minmail Photo / Kurt Schlosser)

Months ago, long before President Donald Trump “hereby ordered” U.S. companies to find places other than China to make their goods, Seattle-based shoe and apparel company Brooks Running was already starting down that path. Not because of a presidential order, but because of the impact of the administration’s tariffs on its business.

“When the tariffs started to get real last year, we just decided there was no rational reason to delay some of the moves we had been planning,” CEO Jim Weber told 10minmail.

Brooks Running made the plans in January after realizing that the trade war wouldn’t be going away any time soon. Trump has threatened to raise tariffs on shoes from 20 percent to as high as 45 percent.

 When the tariffs started to get real last year, we just decided there was no rational reason to delay.

Brooks, which once had around 45 percent of its production coming out of China, will be “out of China completely by next May or June,” Weber said. While larger shoe companies may be able to absorb tariffs through strategies like shipping Chinese-made goods to other markets, that wasn’t an option for a smaller company like Brooks. Instead, the company plans to expand in Vietnam.

It’s one example of the ways technology and product development companies are adjusting to the impact of the U.S.-China trade war. The latest kerfuffle began a week ago when President Donald Trump threatened to raise tariffs from 25 to 30 percent on $250 billion of Chinese goods, which was in response to Beijing’s plan for more levies on American goods.

Brooks Running CEO Jim Weber speaks at the 10minmail Sports Tech Summit. (10minmail Photo)

Even those not directly hit with higher costs are feeling the strain in less obvious ways.

For Vancouver, Wash.-based RealWear, which makes virtual displays for industrial workers, the specifics of the trade war matter less than the environment the tensions create. “The biggest damaging thing for me has been relationships” with Chinese companies, RealWear CEO Andy Lowry said.

The most prominent example is Huawei, the Chinese tech company that has been blacklisted by the federal government. The Trump administration has not yet allowed any U.S. companies to sell to Huawei, the world’s second-largest smartphone maker, despite indicating that it might do so.

Lowry said that his company decided to move away from Huawei as a customer. Even though his company doesn’t share technology with Huawei, Lowry said he wanted to avoid any potential perception of such practices.

RealWear is just one of many companies that has distanced itself from Huawei. Microsoft reportedly stopped accepting new orders from the Chinese company. The biggest recent blow came from Google, which pulled its apps from Huawei devices in response to the U.S. blacklist.

The Google ban comes at an especially inconvenient moment for Huawei, which is preparing for a significant smartphone launch on Sept. 13. Spokesperson Joe Kelly told Reuters last week that Huawei “will continue to use the Android OS and ecosystem if the U.S. government allows us to do so.” In a statement earlier this month, Huawei called the U.S. blacklist efforts “unjust” and “politically motivated.”

Rad Power Bikes
Ty Collins, left, and Mike Radenbaugh, founders of Rad Power Bikes. (10minmail Photo / Kurt Schlosser)

“There are companies that are recognizing that tech is very sensitive,” said J. Norwell Coquillard, executive director of Washington State China Relations Council (WSCRC). “They are changing their efforts to work in other countries.”

But for some companies, eating the cost is easier than moving production. In January, electric bicycle maker Rad Power Bikes decided to absorb the 25 percent tariff on Chinese-manufactured e-bikes that went into effect last summer. (Initially, Seattle-based Rad Power had raised its prices by $200 per bike to offset some of the increased costs.) Rad Power said their plans have not changed following more recent tariff developments.

“We are sacrificing margins to ensure customers don’t have to pay a higher price,” said Mike Radenbaugh, founder and CEO of Rad Power. “Thankfully we have tremendous consumer demand, but the tariffs cut into our ability to scale as quickly as we could otherwise.”

For other tech companies, the giant tariff announcements are less important than the details. Modumetal, a Seattle startup that makes corrosion-resistant steel for the oil and gas industry, has been watching highly specific trade cases related to steel imports.

Large volumes of Chinese-made steel imports have created a difficult environment for U.S. companies to compete, said Modumetal CEO Christina Lomasney. If American steel manufacturers aren’t able to survive in the long term, that means fewer potential partners for Modumetal in the U.S.

Modumental CEO Christina Lomasney shows the company’s technology at the 10minmail Summit. (Photo by Dan DeLong for 10minmail)

The struggles of technology firms have been mild compared to the hardest-hit U.S. industries, such as agricultural exporters, textile manufacturers and automakers. In Washington state, farmers have seen exports to China fall for crops like cherries and apples.

Tim Boyle, the CEO of Portland, Ore.-based Columbia Sportswear, told the New York Times that the latest U.S. tariff plans were “insane.” Trump’s call for tariff increases threw the company’s existing plans into disarray. Columbia manufactures more than 10 percent of its products in China and has considered moving production to Ethiopia, although some specialized products are difficult to produce elsewhere.

“We move stuff around to take advantage of inexpensive labor,” Boyle told the Times. “So when we make a wager on investment, this is not Vegas. We have to have a reasonable expectation we can get a return.”

But not all retailers are feeling the effects equally. Nordstrom CFO Anne Bramman told investors on a recent earnings call that the impact of tariffs would be “relatively immaterial” in 2019. Investors don’t appear to be as hopeful: Nordstrom’s stock has fallen sharply in response to previous tariff news.

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