BOISE — President Donald Trump's tariffs on Chinese goods announced last spring are now affecting businesses across the United states and right here in Idaho.
The $250 billon tariffs are on steel, aluminum, machinery parts, rubber and hundreds of other products. The president has said the tariffs are aimed at pressuring China to change longstanding trade practices that he says is hurting American businesses.
Blac-Rac Manufacturing company says the increased cost of parts they buy from China due to the trade war has put the company's future in jeopardy.
The primary buyers of the unique gun safety locks that Blac-Rac produces are the U.S. military and law enforcement agencies. 60 custom parts make up each Blac-Rac product and about a dozen are imported.
"Some of the rubber composite products are not made in the U.S. any longer so it's our only source," said Blac-Rac CEO Ed Zimmer.
According to Zimmer, when a recent shipment of parts was picked up at customs, the trade war hit hard. The duty rate went from two percent to 10 percent.
"That's like paying ransom to get our own stuff," Zimmer said.
He says Blac-Rac does eight to 10 large orders a year with each totaling around $200,000.
"When this thing goes to 25 percent [on January 1], we're going to have to pay $50,000 per order just to get our stuff here before we start doing anything with them," Zimmer said.
That's just not viable for a small Idaho business with 19 full time employees.
"If we can't pass that cost on to our customers and have to absorb that we won't be able to continue," Zimmer said. "The federal government is 50 percent of our business and we've got prices we've agreed to year ago, three years ago, and multi-year contracts so we would have to go back and renegotiate. This is a big drain."
The company's best hope now is that trade war will end sooner, rather than later.
"We have people depending on us to produce our product," said Camille Olson, who is the business office manager. "There are a lot of people who depend on this being taken care of quickly."
Blac-Rac sent a letter to Sen. Mike Crapo (R-Idaho) outlining how the trade war is affecting the business. We reached out to Crapo's office as well.
A spokesman says there are many businesses contacting lawmakers about this issue, and the concerns are being taken very seriously.
Here is the full letter sent to Crapo:
Dear Senator Crapo,
Blac-Rac Manufacturing Co, is a small business located on Maple Grove Road here in Boise. Blac-Rac designs, manufactures and markets unique safety locks for law enforcement firearms that are carried in vehicles. Our products allow officers to have their duty firearms fully accessorized and ready to use, while safely secured between the seats of their vehicle, allowing quick deployment into the hands of only the authorized user. The products are patented, and are designed and manufactured here in our Boise headquarters.
Our market is law enforcement, federal agencies and military. Our customers include US Border Patrol, US Capitol Police, Los Angeles Police Dept, all military branches, hundreds of local, state police and sheriff departments and foreign law enforcement and military agencies. Since 2010, over 40,000 or our devices have been deployed world wide, mostly in the USA. We employ 19 Idahoans full time at our factory in Boise, providing good assembly jobs and benefits. We are a solid, growing, profitable company with a bright future.
Prior to the Blac-Rac firearm retention system, modern law enforcement weapons (assault rifles) had to be disassembled to be secured inside the vehicle, or carried locked in the trunk or cargo box, not immediately accessible to the officer. We have many testimonials from officers indicating the security they get from our product because their emergency response weapon is safe yet accessible and ready to use.
There are about 60 components in each unit, and today about 70% are from US sources. Some of our rubber and stainless steel parts come from the Hong Kong region, made from materials and processes not easily available in the US. We receive about eight shipments a year from a Hong Kong company that gathers our propriety components from various manufacturers, and consolidates them for shipment. So we don't do many transactions through Customs. We have had this relationship since Blac-Rac started operations in 2010. In the early days of our company, when we had low and uncertain volume, and were strapped for cash to invest, we were forced to go to China for many of our proprietary designs. As Blac-Rac has gotten traction and become financially viable, US suppliers are now interested in doing business with us. All designs in the last few years have been tooled and sourced in the US. While we still have legacy parts that come from the Hong Kong region, as volume increases and existing tools need to be replaced, our strategy is to re-source these items with US suppliers.
We are writing you now as we have recently received a significant business disruption. Our components are historically taxed with import duties of 2% to 2.5% for nearly nine years. However, we received a shipment in mid October with a duty rate of 10% in addition to the 2%. In researching this new duty, we learned that it will increase to 25% on January 1, 2019, by order of the President. That 10% additional cost in October was almost $13,000 in cash…our entire profit in an average month.
In 2018, Blac-Rac will have purchased approximately $2,000,000 in raw materials. Of this, $785,000 currently is from China, the rest is US sourced. By comparison we spend over $1 million with raw materials and service suppliers in Ada and Canyon Counties alone. Blac-Rac is the largest customer for a couple of small businesses in the area.
Our Chinese components come through Customs under HTS Code 8302.30.3060, which is basically processed components of many different materials. However on our most recent shipment of Oct 18, 2018, there was an additional "Census Warning/Override" duty under code 9903.88.03, which added the 10% penalty. This 10% penalty is untenable, severely impacting our ability to provide secure jobs, employee benefits, and invest in growing our business. Under this situation, most of our free cash flow will go to paying duty, limiting investment in new product development and marketing to grow our sales, which directly impacts the local economy. A 25% penalty on current purchases will cost us $200,000 per year at current sales. That will put us in a negative cash flow situation, impacting our ability to make and deliver product to our customers, and harming our employees and owners. Around 50% of our sales is to US Federal agencies and military branches at predetermined pricing on multi-year contracts. Another 40% of sales goes to hundreds of local law enforcement agencies across the USA. Increasing prices on items already budgeted by our customers will certainly be met with resistance, and is an unlikely solution.
Not all parts in question could be sourced in the USA. Even those that could would cost an estimated $150,000 cash investment up front, and take 12 to 18 months to execute for a small company our size.
Senator, we request your guidance. This ill informed import tax situation is punishing small business innovation and entrepreneurship, harming our hard earned business, and putting our customers, employees and owners at risk. Further, we will have a difficult time fulfilling the orders we have with several government branches, most notably Border Patrol, ICE, the US Army and Coast Guard. We hope you can help us in this matter.
Sincerely,
Ed Zimmer, CEO
Kevin Pintar, President and founder
Blac-Rac Manufactring Company
Boise, Idaho