A LOOK AT HOW THE ELECTION RESULTS MAY IMPACT THE BIKE INDUSTRY

As the month of October ended and November was about to start, with its national election, The Micromobility Reporter editor Fred Clements and I discussed our last issue for 2024. Based on the calendar and scheduled events, we decided on one year-end summary edition focused on the probabilities that will potentially have the greatest impact on the American bicycle business and bike shops during the first half of 2025.

The incoming administration and Congress are of greatest interest, and while HPS Analysis of what is most probably going to happen is and will be based on what the president-elect and his incoming qdministration say in public pronouncements, and the speculation of the news media, pundits and professional editorial writers. 

HPS predictions of what appears to be the most probable future are informed guesses on our part. Our intention is to give the bicycle business and in particular bike shops, enough advance warning to anticipate and adjust strategy for business planning. 

The hardest part has been adjusting to a new administration replacing 15 cabinet secretaries and a significant number of cabinet-level roles in the 20 days after the election.

The history books will mark this as one of the fastest timeframes for nominating all cabinet secretaries, including the nominee for the first Attorney General nominee being named and withdrawn, and a second nominee being named, all within the same 20 days.

Also, 72 new members won election to the 119^th Congress, including 11 new senators and 61 new U.S. representatives. The Republican party retained control of the House of Representatives and re-elected Representative Mike Johnson speaker of the House. The Republican party won control of the Senate and elected Senator John Thune majority leader.

We do not expect much change in the committee chairs and ranking minorities in the House of Representatives. However, we do expect new Republican committee chairs in the Senate, and new ranking minorities which will also result in new incoming committee staff.

These changes will require about six months, or until sometime in late June or early July, before the initial dust has settled, and there is a focused picture for the bicycle lobby. An important subset is the Congressional Bike Caucus and the members of the 119^th that will join and lend their names and support. 

The upcoming League of American Bicyclists (LAB) National Bike Summit, March 11-13, 2025, will be an excellent opportunity for an update on the status of the bicycle lobby and the 119^th Congress.

The incoming administration will also be on the LAB National Bike Summit agenda, in part because it is off to such a quick start with the naming of all 15 cabinet secretary nominees within 20 days after the election, and sending the names to the Senate for vetting and confirmation. 

While the President-elect has asked for the Senate to consider recess appointments for his cabinet nominees and that issue will be hashed out and decided before the January inauguration, the question HPS is asking is: “…who rides a bicycle?” Who among the 15 nominees for cabinet-level jobs rides a bicycle? We have reached out to LAB and will pursue this question with the NBDA and our readers. If you have any insight into whether any of the cabinet nominees rides a bicycle (or e-bike) regularly, please let us know.

The next hard part, after adjusting to a whole new administration in Washington, has been how to present the most important issues to the bicycle business and bike shops. 

After a number of false starts at grouping the ongoing research, U.S. political and geopolitical events, HPS has decided on the following initial list of issues, subject to input from our team and feedback from our readers:

• Trade and tariffs
  • Impact on product cost, wholesale and retail pricing
  • Impact on retail profit margin
  • Reshoring and nearshoring
    
• Economy
  • Consumer spending
  • Inflation
  • Unemployment
  • Immigration
  • Labor
    
• Climate change
  • Impact of weather events
  • Impact of climate change on cycling
  • Impact on regional economies and bike shops

While this is the initial list, HPS will amend, add and subtract as political, geopolitical, economic, and market conditions require.

Trade and Tariffs

The Biden administration retained the Section 301 punitive tariffs that the Trump Administration had imposed on imports of bicycles, including e-bikes from China. 

Our years of working in and around U.S. tariffs prompted HPS to label the Section 301 tariffs “punitive” because they are imposed on top of any existing U.S. import tariffs. 

The tariffs imposed on imports are a tax on the FOB (value of the goods on the dock of the original equipment manufacturer, or OEM), paid for by the importer, and passed along as part of the landed cost of goods in the pricing to retailers, and ultimately the consumer.  

5.5 percent and 11 percent import tariffs on the FOB value of regular-pedal bicycles have existed for decades, and for decades have been factored into the cost of goods and retail pricing. 

The 0 percent import tariffs, as utilized for e-bikes, have also been in existence for decades.

The 25 percent Section 301 punitive tariffs on imports from China were imposed by Executive Order pre-pandemic, and have been on and off in a confusing series of exceptions and suspensions until the end of September 2024.

These punitive tariffs were suspended in whole or part at various times, but the final suspensions expired at the end of the 3^rd quarter, and a 25 percent punitive tariff has been imposed on top of the regular tariffs on regular pedal bicycles originating in China, and 25 percent on e-bikes originating in China since the end of September. 

This means total tariffs of 30.5 percent and 36 percent on regular pedal bicycles, and 25 percent on e-bikes imported from China have been imposed and collected by U.S. Customs, and this additional cost has been factored into the wholesale and retail pricing.

With this said, U.S. imports of regular pedal bicycles and those e-bikes that can be tracked through U.S. Customs originating in China, totaled around 87 of percent of total monthly imports in August, and have been over 80 percent of total U.S. imports of bicycles and e-bikes YTD.

U.S. Customs assesses customs duty when a shipment clears the U.S. port of entry, and the duty is due in cash 10 days thereafter. Import duty is part of the landed cost of goods and it is included in the price calculation that is passed on to retailers and consumers. 

However, the inventory glut and the continued slow sales of bicycles and e-bikes in the 2022-2024 period have led to price cutting and discounting, which has only served to create a very confusing situation. While very good for consumers, it does not consistently reflect the actual cost of goods in retail pricing.

It is probably going to take at least another full season to bleed off the excess inventory and for retail prices to reflect the actual landed cost of goods. 

Going forward, the president-elect has talked during the campaign about imposing up to 20 percent tariffs on goods from countries other than China. 

This means the tariffs on regular or pedal bicycles from countries other than China, and including e-bikes, could increase to 20 percent, or potentially could increase to 25.5 percent or 31 percent, and 20 percent for e-bikes if the new administration employs Section 301 punitive tariffs.

The president-elect also talked about imposing up to 60 percent tariffs on goods from China.

This means the 5.5 percent or 11 percent on regular or pedal bicycles and e-bikes originating in China could increase to 60 percent, or potentially could increase to 65.5 percent or 71 percent on regular pedal bicycles.

While Trump may very well employ Section 301 or a similar trade section that allows him to use executive action, he also has the slower choice of having a bill originate in the House Ways and Means Committee and move through the legislative process. 

Given that the same people advising the president-elect on trade matters during his previous term will probably be nominated for economic and trade positions in his new administration, I would say his use of Section 301 (or similar trade authority) is highly probable.

While the U.S. industry is slowly moving production out of China, it will be a slow process taking years, not months. Reshoring is also a very slow and highly capital-intensive strategy that, in reality, has not even started. 

Over 94 to 95 percent of all bicycles and e-bikes sold in the United States are imported. Over 85 to 87 percent of all U.S. imports originate in China.  

The pandemic and the post-pandemic period were turbulent and disruptive for the bicycle/e-bike business and the consumer in the American market.

The 2024 campaign and election have, unfortunately, added to the disruption and uncertainty, including the current facts and future of tariffs as a component of product cost and retail pricing.

HPS Analysis: Bottom line: HPS is currently informing clients that there is a high probability that the new administration will impose revised Section 301 punitive tariffs on imports of bicycles and e-bikes imported from China that could be up to 60 percent within the next six months, to go into effect no later than the end of 2025, subject to applications for exception.

Adding any punitive tariff above the current 25 percent on top of the regular tariff will drive up the landed cost of bicycles and e-bikes imported from China. The Chinese government may choose to offset some of the tariff increase through subsidies paid to the OEMs which can be used to reduce the FOB cost of the products, reducing the potential cost and retail price increase to retailers and consumers. However, this is only a stopgap measure that will only put off decoupling and moving production out of China.

In addition, it is probable that the new administration will impose revised Section 301 punitive tariffs on imports of bicycles and e-bikes imported from other than China of up to 20 percent within the next six months to go into effect no later than the end of 2025, subject to applications for exception.

Punitive tariffs on bicycles and e-bikes from countries of origin other than China will be passed along as cost and retail price increases and will trigger inflationary increases that have the probability of reducing consumer demand and purchases going forward. This will be detrimental to the bicycle business and will force bike shops to shift their emphasis from new bike and e-bike sales to service, used products, and other cross-over products to replace lost new unit sales. 

These probabilities are based on what the president-elect, and incoming administration nominees have said during the campaign and are subject to amendment and change as the new administration shifts from campaign promises to the reality of international trade negotiations.

HPS will have an update in January.

Economy

Immigration: What does immigration have to do with the economy and particularly the bicycle business and bike shops? Legal and so-called illegal immigrants are a part of the bicycle ecosystem, and while maybe not having a big impact on most bike shops, they do represent a relatively significant portion of the consumer market for mass merchant bicycles and DTC bicycles and e-bikes.

Immigrants also represent a portion of parts and accessory sales and service labor.

The latest data indicates that 42 percent of all farm workers currently working in the U.S. are undocumented immigrants. While HPS couldn’t find current data, the housing construction market in states like Texas has become very concerned because of the high percentage of workers it currently employs who are immigrants, many of whom are undocumented.

The incoming administration has been very vocal about mass arrests and deportations of so-called illegal immigrants across the U.S. starting right after the inauguration in January, and businesses and municipalities are expressing concern about the negative impact on the availability of workers resulting in an increase in unemployment and additional costs of the mass arrests, incarceration and deportations, all of which have the potential to increase inflation and decrease economic growth in some industries and business sectors. 

HPS Analysis: Mass arrests and deportations of so-called illegal immigrants was one of the top promises made throughout the presidential campaign, and one of the very first nominations the president-elect made after the election was Tom Homan as the head of ICE and the title of “Border Czar.” There is no doubt large amounts of federal funds and a huge amount of manpower are going to be allocated to carrying out these campaign promises, including a constitutional fight over the promised deployment of the federal military in this effort. While the legal arguments are going on, there is also going to be a significant negative impact on the U.S. labor force that has a very real probability of contributing to both inflation and unemployment. Further, none of this will be good for the American bicycle business or the bike shop segment.

Labor: There is a looming labor dispute hanging over the country as the new administration continues to put its nominees and appointees in positions in the federal government. The Longshoreman’s union representing dock workers from the Gulf of Mexico to all the Atlantic ports up to the Canadian boarder is ready to walk off the job in mid-January, not because of wages that were agreed upon before the election, but because of automation. 

The ports have made it clear they are not open to union demands and the two sides have broken off negotiations. The Secretary of Labor nominee, Lori Chavez-De Remar, was just named. She and Transportation Secretary nominee Sean Duffy know, or they both should know, their first big challenge will be to avert an ocean port strike that potentially could cripple the U.S. economy.   

HPS Analysis: Recent stockholder calls have shown that one of the primary differences between Walmart's projected revenue increase and stock price going up, and Target’s projected revenue decrease and stock price going down, was their logistics divisions being able to prepare for and manage the West Coast dock workers strike, and their preparations for the looming Gulf and Atlantic dock worker’s strike. 

The simple answer of: “We will just divert in coming ocean shipments to Pacific Coast ports” is interesting, but also costly. If you can afford the additional cost and the potential delays it will work. If you cannot afford it, you face reduced profitability in the face of rising costs of importing goods. 

Diverting to the Pacific Coast ports will also result in delays as the ports become crowded, and the line of ships waiting to enter the open ports will quickly grow, as it did during the pandemic. While settling the wage portion of the Gulf and East Coast dock workers dispute and pushing out the automation issue until after the election avoided a major distraction before the election, kicking this can down the road until after the election set up the winner of the election for a difficult labor negotiation in mid-January. 

The president of the dock workers union has made it clear that he knows he can, and is willing to, cripple the U.S. economy if he needs to play this card to get the final contract he wants. The port owners, who made large profits during the pandemic, have been unwilling to share any of the windfall with the dock workers. 

Without debating the merits of either side, this labor situation has already affected the American bicycle business and the bike shop channel of trade because of the delays it is causing in deliveries and the additional costs that the importers are trying to figure out how to pass all or part of to the retail customers. 

The bike shops, on the other hand, are finding it very difficult to pass on any additional costs to consumers in the form of higher retail prices. This is leaving importers and some bike shops with a further shrinking of profit margins. 

Because the position of the incoming administration has not been made public there is no idea of how this labor dispute will play out, but unless the Biden administration and Secretary of Transportation Buttigieg can reopen negotiations by bringing both sides to the table and working out an agreement on automation before the inauguration in January, HPS is telling clients that this labor dispute is going to escalate to a full-blown strike that has the potential to last well into the spring and can cripple the U.S. economy in whole or part depending on how long it lasts. 

If a bicycle business entity is dependent on a Gulf or East Coast port, and cannot afford airfreight, diverting shipments to West Coast ports, and doing that as carefully as possible, is the only viable alternative.      

Climate Change

HPS Analysis: This is probably the single biggest factor affecting the future American bicycle business economy, as well as the economy of the bicycle market and country as a whole. 

Hurricane Helene is a good example. This weather event reached all the way to Asheville, NC, the self-declared mountain bike capital, and shut down the bike business for the whole season, with no promise that it will ever recover to what it was.

While there are regions of the country, like Bentonville, AR, that will not be reached by hurricanes that originate in the Atlantic and come up through the Gulf, high winds, thunderstorms and tornadoes will impact these areas just as the "atmospheric river" is inundating the Pacific Northwest with record snowfall, rain, high winds and mudslides as this article is being written. 

Believe me, this isn’t a political statement or an attempt at one. It is a simple statement of the facts about how the impact of climate change is already affecting cycling in this country and will continue to grow as a factor in the economic health of the bicycle business and the bike shop channel of trade.

As an industry and as a channel of trade we need to understand the impact of climate change on the regions we live and do business in and prepare and adapt our businesses accordingly. 

There is ample factual evidence that coastal areas will become less cycling-friendly for portions of each season, and I am sure the companies offering cycling vacations and day trips are already adjusting to this reality. The bike shop channel of trade needs to study and learn from the companies offering bike tours and rentals in their region and adjust their business accordingly.

I bring this up as an economic and business issue because we cannot expect leadership or assistance from the incoming administration in Washington. It will be up to our industry and our trade associations to take the lead and begin to develop the information to assist in formulating business strategies that include the impact of climate change and weather events on regional and local economies and bike shops.

January 2025 Issue

The big event in January will be the inauguration, and the news cycle will have settled down to the point that we hope to return to our previous format of news articles with HPS Analysis.

We also are planning to include one or all three of the topics introduced in this issue of The Micromobility Reporter:

• Trade and Tariffs
• Economy
• Climate Change

Happy Thanksgiving and enjoy the Christmas Holidays!

Contact Jay Townley: jay@humanpoweredsolutions.com.