The cost of U.S.-China trade tensions is normally tallied in big numbers—a $345 billion Chinese bilateral trade surplus in 2019, Beijing’s commitment to buy $32 billion more American farm products over two years, and hundreds of billions in tit-for-tat tariffs.
But for many small businesses struggling to stay afloat in a pandemic-induced slowdown, the bottom-line damage of the trade war is measured in dollars and cents. And here the bottom line is clear: A Trump Administration offensive supposedly intended to help American businesses is having the exact opposite effect.
That has been my experience as an American entrepreneur who manufactures guitar capos in China for the U.S. market. I never imagined my tiny business would get caught up in a tariff battle, but I have learned that in a trade war there is no peace, even for musicians.
I launched Creative Tunings a decade ago after a lifetime as a professional musician, and endless tinkering to get everything just right on the guitar. The result was a patent for a better capo—the device guitarists attach to the neck of their instrument to change the pitch of the strings. My invention won “Best in Show” at the world’s biggest music trade show in 2009.
But how to turn that breakthrough into a business that could carve out a market and satisfy my investors? I immediately learned that manufacturing my capo in the United States would be twice as expensive as teaming up with a Chinese factory—even taking into account the cost of shipping and U.S. import taxes at the time. I would have preferred “Made in the U.S.A.” But like so many other American businesses over the past 20 years, I had no choice but to turn to China because of the cost differential.
The venture proved to be one more example of the American Dream: better product meets eager market. The capo was a success, and for several years I had the market to myself. But eventually, like many successful businesses before me, I learned that in a global marketplace tightly linked by online retailers, there will always be competitors, including unscrupulous ones: a Chinese company reverse-engineered cheap knockoffs of my capo and sold them on Amazon alongside mine—despite my patents and trademarks. My company managed to keep going despite this challenge.
Enter President Trump’s punitive tariffs. The subsection of the U.S. import code that applies to my product is “guitar accessories,” which are taxed at a 4.9% rate. Initially, Trump added an additional 25% to this rate—a far greater percentage than the profit margin for my small business. This rate affects parts that are manufactured in China (purchased in what is called a “B to B” transaction), and then assembled and sold by an American company. However, that tariff does not affect consumer products that are sold retail in the U.S. market by Chinese competitors, which is why you can still get those great deals on Amazon shipped directly from China.
At that point, I could no longer produce my capos for a profit, and it looked like the dream was effectively over. But I was lucky. As the trade war ebbed and flowed the tariff on my subsection of the import code was reduced to 15% and then 7.5%. I quickly ordered a new supply of capos, paying 7.5% plus the original 4.9% tariff to land them in New York harbor.
Even with that change, however, my profit margins have been halved, which means, among other things, no more advertising budget and less spending on accessories and promotional items. All of that used to go to American companies.
To add insult to injury, Chinese online retailers can ship to the United States at much lower cost than American companies pay to ship within the United States because of a longstanding international postal agreement that classifies China as a developing country. Although President Trump made headlines by threatening to leave the postal treaty, he backed down after the Universal Postal Union agreed the United States could set new rates. However, that effort languishes in Washington, with neither the Trump Administration nor Congress willing to move forward.
Meanwhile, the Chinese company that stole my patented and trademarked product continues to sell its copycat capos on Amazon Prime at lower prices than mine because I pay the tariffs and higher shipping costs. They even use my own promotional videos in their advertising!
So, despite the president’s claims to the contrary, the additional tariffs don’t protect U.S. small businesses; they punish them, and in the worst case, force them to close. And ironically, the tariffs have not even been effective. In August, China’s trade surplus to the U.S. hit its highest level since November 2018. And the administration has done little to protect U.S. intellectual property rights, so I have no recourse to combat those who have stolen my invention.
For all of President Trump’s tough talk about standing up to China, his policies have simply hurt the little guy. Chinese retail goods—including pirated products—continue to flood the U.S. market, while we pay higher tariffs. Many multinational companies have used their leverage in Washington to get tariff exemptions, but that option is not open to small businesses. We can only watch as our business dreams are crushed.
