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With talk of increasing import tariffs through the border adjustment tax, brands balk at potential cost hikes and labor shortages.
President Donald Trump continues to chant “America First,” but his threats to penalize companies that manufacture overseas could force brands to discontinue technical gear that’s too pricey to make domestically.
The threat comes in the form of the border adjustment tax, which House Republicans have proposed as part of a bigger tax reform effort. It boils down to this: companies would see a decrease in the corporate tax rate, from 35 percent to 20. But they also wouldn’t be able to write off the costs of manufacturing abroad or importing those goods. That means that companies like those in the outdoor industry, which rely heavily on foreign manufacturing, could have to spike prices dramatically in order to stay afloat.
Domestic manufacturing sounds like an easy panacea to this threat. But some brands say the market just can’t accommodate the high costs of making technical gear here in the U.S.
Take Black Diamond, for example. When the brand moved some of its manufacturing and assembly to a facility in Utah, it found limits to what can be made well here. They still lean on some offshore facilities for much of their line, particularly those items that require specialized skills, like sewing gloves or investment-casting ice tools.
If duties spike so much that importing products isn’t feasible, says Doug Heinrich, vice president of product for Black Diamond Equipment, they may simply drop the products rather than try to sell, say, a $600 ice ax.
“It’s kind of game-over on certain things,” Heinrich says. “The consumer can bear slight prices increases one way or another, but if it gets ridiculous, you just sort of end up pricing some products out of the market if they’re U.S.-made only.”
The move to bring assembly of carabiners, ice screws, stoppers, hexes, and cams back to the states was fueled in part by rising labor costs in China. But finding Utahns who wanted those jobs wasn’t easy, even at a base rate of about $14 an hour—nearly twice Utah’s minimum wage.
“If you have an educated, American college student, they sure as hell don’t want to do an assembly job at Black Diamond putting carabiners together,” Heinrich says. “We raised our rates and we have more incentives, and with more automation, we’ll get through it, but we definitely struggled out of the gate.”
As the Trump administration gets to know the Outdoor Industry Association, they’ll be hearing much about these efforts to increase domestic manufacturing—as well as the “unnaturally high import tariffs,” says Rich Harper, manager for international trade for the Outdoor Industry Association.
“We’re open to working with [this administration] to reinvigorate domestic manufacturing and help grow export opportunities for our domestic manufacturers,” he says. “But we also want to make the case that, with our balanced trade agenda, where we pursue tariff elimination is on those products where there is no domestic manufacturing.”
One of the potential levers at work in adjusting goods going out of the country and jobs coming in is the border adjustment tax. That tax would give and take away tax breaks to make it cheaper to export goods and more expensive to import them. But the system only works if the value of the dollar quickly rises by 20 percent—in a world where a 1 percent change is a big deal.
If the dollar doesn’t quickly get stronger, which would make foreign-made goods less expensive, prices will just go up for consumers, according to a New York Federal Reserve analysis. The National Retail Federation, a staunch opponent of such a tax, says the cost of everyday items could increase 15 percent across the board.
What it takes to manufacture gear in the United States
Under Armour garnered much press for the 35,000-square-foot manufacturing facility the brand opened in Baltimore last summer. That center now produces sports bras and matching leggings, and the company contends the facility is poised to quickly innovate and deliver new products to consumers. UA reps were unavailable for comment, but spoke to The Washington Post in January about a goal to make gear closer to where it’s sold, as part of this “local for local” manufacturing.
Even those who have a longstanding commitment to making products in the United States, like Cascade Designs, say there are limits to just how much can affordably be done here. Over the decades, the company has had to rely more and more on components made overseas.
“The bulk of our things, we are able to make in the U.S., but we have to be really careful about how we do it and where we do it,” says John Burroughs, co-founder of Cascade Designs. “We’ve shown that it’s very possible to have a company last for 44 years that does the bulk of its manufacturing in the U.S.”
Any products that require a lot of complicated sewing, like tents or packs, are manufactured offshore to avoid the price spiking as much as four times the current cost. Only 2 percent of its tents are made in America, and 4 percent of clothes, while 96 percent of their snowshoes and 95 percent of their hydration systems are made here.
At VOORMI, where products are made domestically from domestic sources, CEO Dan English argues that the problem is the mindset.
“You can’t solve tomorrow’s problems with yesterday’s thought processes,” he contends, paraphrasing Albert Einstein. “If you truly are committed to bringing new jobs and new products into the U.S., things are going to have to be developed and thought about in a new way.”
Automation should be used to absorb the mundane tasks—like carabiner assembly—and free humans up to focus on higher-level skills, English argues. That intensive technology use could actually make those jobs appeal to younger workers, he says. Building that workforce requires investing in university programs, internships, facilities, and eventually workers, of course, but in creating this new infrastructure, he suggests a distributed model that puts 10 jobs each in 10 mountain communities, rather than 100 in a single location. That facility size allows for innovation and adaptation, in addition to benefitting local economies and meeting the “buy local” ethos.
If outdoor industry brands don’t begin to innovate and diversify this model, argues English, who is himself a transplant from the tech industry, they stand to lose their market shares to nimbler ventures. Outsiders from other industries, like the tech world, could swoop in with cost-saving business models and disrupt the current market, creating more competition.
“If we don’t change course and if there’s not more leadership from the big brands in how we look at innovation, then it’s going to be another industry that comes and takes over things,” English said. “And we’re at that tipping point, frankly, as an industry.”