The effect of tariffs on the paddling industry

[Glenn MacGrady]

As sort of an experiment, I believe it's possible to discuss the economic effects of current and potential future tariffs—such as effects on supply, demand and prices for various paddling products in various countries—without voicing partisan political positions or commentary. (Site Rule: "Absolutely no politics.")

The following article does a decent job of that, except it doesn't focus much on the economics of tariffs or international taxes imposed by countries other than the U.S. (such as the EU VAT tax):

Tariffs Come Roaring Back To The Paddling Industry. Probably. (Maybe?)

Have you ever been pushed off your line in a big rapid and realized that no matter what you do, you’re about to end up in a terminal hole? The new Trump

paddlingmag.com

If we cannot discuss this topic without political commentary, I'll edit out those comments or shut down the thread. It's an important and relevant topic, so go for it . . . diplomatically . . . if you're so inclined.

 

[Jmharrick]

I would think the short term solution for the Canadian companies would be to buy/lease warehouse space in the US and stockpile as much of their product as they can before the tariff’s take effect. They could then raise prices a small amount (less than the tariff) and claim the tariff is impacting their costs. They could use that extra cash to cover the cost of leasing the warehouse space while still offering a reasonable price for their products. Obviously this doesn’t work long term…

 

[Tryin']

Using tit-for-tat exchange rates, it would seem that American consumers are already paying a premium for Canadian paddlesport goods. Looking at you, Swift.

Manufacturers will charge what the market will bear. The language used to justify increases will reflect the popular boogeyman of the time. Covid, supply chain "issues", inflation, tariffs, etc. That is not to say that there aren't legitimate increases due to these market stressors, but color me cynical on the 1 for 1 translation on tariff costs being passed to the consumer. And if they are, the consumer will decide if the Canadian product is worth the extra coin. I like Swift and NovaCraft boats. Right now, that means they have a leg up on the US competition when it comes to my dollars. If tariffs or other market forces bump prices beyond my desired cap, maybe Wenonah and Northstar get my business. Bad for me, because I like Swift and NC, good for America because my dollars stay here.

Tariffs may reduce selection within established price brackets, but I don't think they will reduce the overall selection. At least not until a point is reached wherein buying a particular product simply ceases.

As far as US companies who produce overseas, well, that's the risk you take when you offshore. It may work out for many moons, and then one year it doesn't.

 

[Keeled Over]

I would think the short term solution for the Canadian companies would be to buy/lease warehouse space in the US and stockpile as much of their product as they can before the tariff’s take effect. They could then raise prices a small amount (less than the tariff) and claim the tariff is impacting their costs. They could use that extra cash to cover the cost of leasing the warehouse space while still offering a reasonable price for their products. Obviously this doesn’t work long term…

There are companies I used for years right across borders that do this. They monitor inventories and drop ship.

 

[memaquay]

It would be interesting to see a spread sheet of each company in terms of domestic vs foreign sales. I'm only guessing, but I'm thinking that there are a lot more Canadian canoes sold in Canada compared to American made. I'm wondering if it is the same in the States, with American made canoes outselling Canadian. On the other hand, what percentage of NC or Swift sales are made up of buyers from the States?

I would hate to see a major company like Nova Craft or Swift go under. However, they have been pricing themselves into a market where only people with lots of disposable income can play, maybe another 25% won't matter.

Domestically, I see companies like Esquif and Souris River becoming very popular in Canada if the two big companies have to jack up their already inflated prices.

I'm wondering what the effect on the price of epoxy is going to be, it is already sky high, and most of the good stuff comes from the States.

 

[Art D]

Using tit-for-tat exchange rates, it would seem that American consumers are already paying a premium for Canadian paddlesport goods. Looking at you, Swift.

Manufacturers will charge what the market will bear. The language used to justify increases will reflect the popular boogeyman of the time. Covid, supply chain "issues", inflation, tariffs, etc. That is not to say that there aren't legitimate increases due to these market stressors, but color me cynical on the 1 for 1 translation on tariff costs being passed to the consumer. And if they are, the consumer will decide if the Canadian product is worth the extra coin. I like Swift and NovaCraft boats. Right now, that means they have a leg up on the US competition when it comes to my dollars. If tariffs or other market forces bump prices beyond my desired cap, maybe Wenonah and Northstar get my business. Bad for me, because I like Swift and NC, good for America because my dollars stay here.

Tariffs may reduce selection within established price brackets, but I don't think they will reduce the overall selection. At least not until a point is reached wherein buying a particular product simply ceases.

As far as US companies who produce overseas, well, that's the risk you take when you offshore. It may work out for many moons, and then one year it doesn't.

It is likely that the American builders will raise their prices to fill the gap between current prices and the tariffed prices for Canadian boats. And why not, their business and will want to maximize profits. Consumers will then face the same level playing field but with higher prices from every manufacturer.

 

[Benson Gray]

This is not a new issue. Tariffs have been impacting the distribution of canoes for over a hundred years. The link below has more details. The attached file contains the Old Town Canoe company's response to a proposed tariff on Canadian cedar in 1929.

Benson

Tariffs and their impact on canoe distribution

The Old Town Canoe Company's original factory on Middle Street in Old Town, Maine is about 155 miles or 250 kilometers from the Chestnut Canoe Company's factory on York Street in Fredericton, New Brunswick. That sort of close proximity would usually create a lot of competition for customers but...

forums.wcha.org

 

[Blukanu]

I would be interested what prices the canoe market can really bear. Paddling doesn’t necessarily seem like a rich persons game but it certainly can be.

Anyone ever see some marketing statistics on paddlesport customers?

 

[Cruiser]

Guess I have a simpler view of tariffs in general. There is only one entity that pays directly and that is the consumer (assuming normal practices of pass increases to the customer)... if they want the product, they have to pay. It follows that there is only one "winner" and that is the entity collecting the tariff.

This is likely going to also blowback on the manufacturer as the amount of sales is likely going to drop and in general hurt that business.

With tariffs there is only ever one "winner" and it isn't the people making stuff or the people buying stuff.

 

[Steve in Idaho]

Frankly, the big makers are already priced out of my range. NC, Swift, Wenonah, Northstar, etc...
Tarrifs on canoes won't mean a thing to me. OTOH, there's the possibility that another builder like Kaz materializes. Although I appreciate beauty and like when I find a pristine KX Malecite with slotted rails on the used market for less than half the going price, I'm not even a little bit okay with paying the current new prices for that level of sweetness. Give me a functional, lightweight, durable, efficient hull that I won't feel bad about covering with scratches for a thousand or more less.

 

[Punkinhead]

Depending on how they're implemented tariffs could effect domestic canoe manufacturers due to taxes on raw materials. I believe (but could be wrong) that most resins and epoxies are US manufactured but I don't know if that's true for the chemicals that make up the resin/epoxy. Maybe there's a chemist lurking about who would know. Ditto for cloth and other materials.

I'm a bit worried because as soon as I get back from my winter trip in early April I plan to buy a boat and all new gear to get back into whitewater. Boat, paddle, drysuit, PFD, helmet, float bags, throw bag, etc. Big price bumps from tariffs may keep me out of the sport. There's a robust used market for WW stuff but it's mostly in the southeast and most sellers don't want to deal with shipping.

 

[deerfly]

Can someone give me a legitimate reason for a trade imbalance between sovereign countries on the order of 10's or 100's of billions in this case?

I'm not an economist but i don't see any downside to tariff reciprocity, which is what is being proposed. Balance the tariff's and let market forces play out to find their equilibrium. IMHO free market as free market can be.

In the grand scheme of things canoes are a cottage industry, so could be more severely impacted under strict tariff enforcement vs auto's or high volume commodities. So not hard to envision canoe mfr's being forced into primarily domestic sales to remain viable. In this case Canadian mfr's may be impacted the most if they have to pay more to sell into the US.

As consumers of course we may lose access to foreign built canoes, but no country is entitled to another country's customers without a fair trade policy bridging the two. Lop sided trade balances are anything but fair for the country and customers on the negative side of the ledger.

 

[Blukanu]

Depending on how they're implemented tariffs could effect domestic canoe manufacturers due to taxes on raw materials. I believe (but could be wrong) that most resins and epoxies are US manufactured but I don't know if that's true for the chemicals that make up the resin/epoxy. Maybe there's a chemist lurking about who would know. Ditto for cloth and other materials.

At my job we do glass filament winding. We source glass, resign and hardener domestically. There are cheap materials we source from China as a backup but quality is lacking so we try not to.

 

[recped]

Can someone give me a legitimate reason for a trade imbalance between sovereign countries on the order of 10's or 100's of billions in this case?

I'm not an economist but i don't see any downside to tariff reciprocity, which is what is being proposed. Balance the tariff's and let market forces play out to find their equilibrium. IMHO free market as free market can be.

In the grand scheme of things canoes are a cottage industry, so could be more severely impacted under strict tariff enforcement vs auto's or high volume commodities. So not hard to envision canoe mfr's being forced into primarily domestic sales to remain viable. In this case Canadian mfr's may be impacted the most if they have to pay more to sell into the US.

As consumers of course we may lose access to foreign built canoes, but no country is entitled to another country's customers without a fair trade policy bridging the two. Lop sided trade balances are anything but fair for the country and customers on the negative side of the ledger.

Reasons for a trade imbalance, lets look at Canada/USA to start.

First thing to understand is that since NAFTA and the subsequent USMCA trade agreements most goods that originate in Canada, Mexico or the US have been free of any tariffs within those 3 countries.

Now as far as the trade imbalance between Canada and the US, Canada has a huge amount of natural resources that we export to the US which cannot be fulfilled from the US domestic sources (Oil, Lumber & Paper, Fertilizer, Maple Syrup, rare earths, Aluminum, etc. etc. etc.)

Likewise Canada imports many goods from the US that Canada cannot supply from domestic sources (fresh fruit & veg, autos etc.)

One primary reason for the US/CA trade deficit is simply because the 40 Million people in Canada do not require the same level of US imports as the 340 Million people in the US need to import from Canada.

 

[Halpc]

Good valid explanation from repced, particularly the difference in population and hence difference in the gross size of demand between the two countries. Some of the comments above reveal a misunderstanding in the nature of tariffs (which is constantly lied about by the current US "leadership ". The tariff is paid by the importer, not the exporters. Canadian manufacturers wouldn't have to "pay more to sell into the U.S.". The U.S. based distributor would have to pay the tariff and hope that he can recoup the money by raising the prices he charges to the dealers. The latter then would have to increase the retail price to the buyers in order to maintain their profit margin and stay in business. The end user is the one who ends up effectively paying most, if not all of the tariff. That is why tariffs tend to increase inflation substantially. The impact on canoes is pretty simple. Automobile components are another matter, with partially assembled cars/trucks crossing the border multiple times as they are assembled. My economics professors all concurred that free trade is the most efficient policy for allocating resources.

 

[MyKneesHurt]

^Burn it all down if you can't win, man.

I've never had the money to buy a high-end canoe, so it's a moot point for me. You can build a skin-on-frame for a few hundred bucks. I've never built a stripper, so I don't know much how much it would cost to build one, but I'm guessing far less than the three or four thousand bucks a production canoe costs. If there's a plus side to prices going up across the board, it's that people might look more often at building themselves a boat to save money.

 

[memaquay]

True, I have never bought a high end canoe either, so tariffs on canoes don't directly affect me. I am very happy that I just bought my new canoe carrier, a Ford Ranger, built in Michigan. It would have been much more costly with a 25% tariff. In terms of political feistiness, I believe that this conversation is pretty focused, and that the Canadians are showing obvious restraint by ignoring the elephant in the room.

 

[Gamma1214]

The end user is the one who ends up effectively paying most, if not all of the tariff.

That's true of any & all taxes.

I am also in the "tariffs won't affect my paddling plans much" group except that I may have to include 6 gallons of epoxy in my canoe repair kit when I head North this summer (hey, I'm really hard on boats and I used all of it out there... what can I say?)

Along those lines, I wonder who pays the tariff on internet purchases? If RAKA shipped Mem some epoxy, there would be no importer... would Mem be responsible to send the check? I know PA tried the honor system for internet purchases and it was a huge failure because nobody sent in the 6%. I can only imagine the response when there's 25% on the line.

If that's the case here, it would further damage the brick & mortar retailers as even more people would be making online purchases.

(PS: FWIW, I enjoy arguing politics. If you'd like to know why you're full of crap, feel free to PM me.)

 

[Pseudonym]

I wonder who pays the tariff on internet purchases?

I've had a somewhat analogous situation with MA state sales taxes. One of my businesses has been audited for "use tax." This was a number of years ago, but any out of state sales (generally internet purchases) that were not subject to the MA state sales tax at the point of purchase were supposed to be tracked by my business, so that the MA sales tax could be paid for later as part of my tax filings. It was a pain in the neck and I got the sense that few small businesses were effectively doing so unless they ran into an audit.

 

[FloridaJohn]

Along those lines, I wonder who pays the tariff on internet purchases? If RAKA shipped Mem some epoxy, there would be no importer... would Mem be responsible to send the check? I know PA tried the honor system for internet purchases and it was a huge failure because nobody sent in the 6%. I can only imagine the response when there's 25% on the line.

From RAKA's website:

Customs and import duties may be applied to International orders when the shipment reaches its destination. Such charges are the responsibility of the recipient of your order and vary from country to country. Contact your local customs office for details.

And this for domestic (US) sales tax:

RAKA INC charges sales tax for merchandise ordered on this Web site based on the applicable state sales tax rate and the location to which the order is being shipped.

So a cross border shipment would have the recipient responsible for paying any tariffs. Local customs office will probably hold it until payment. State sales tax would be paid by the customer to RAKA, who would then forward the money on to the appropriate state tax office.