Even by the standards of what has been a tumultuous few months, last week was a landmark one in politics on both sides of the Atlantic. Last Tuesday, UK Prime Minister Theresa May confirmed plans for a hard Brexit, and Friday saw Donald Trump inaugurated as the 45th President of the United States.
While both raise far more important issues than what they mean for the bicycle market, it did get us thinking here at road.cc about their potential impact on the industry – and on what your next bike might be and where it might come from.
In short, we think bikes are on the whole going to get more expensive, and especially those in the middle to high end of the market. We’ve already seen price rises from major brands due to the fall in value of sterling since June’s referendum, but the UK’s future trading arrangements with the EU, and what happens across the Atlantic, could also play a role.
Our conversation was prompted by a couple of articles published on BikeBiz last Wednesday written by its executive editor and cycling author Carlton Reid. One looked at how the Trump presidency might affect US bike brands, including Cannondale, Specialized and Trek.
The other followed a suggestion by Foreign Secretary Boris Johnson that if India were to lift tariffs on goods such as Scotch Whisky, the UK could reciprocate by doing away with them on goods including bicycles.
(Whether, a few years down the line, what’s left of the UK will have any influence over trade deals involving whisky made in what might then be an independent Scotland is a detail that seems to have escaped Johnson.)
Where bikes come from
The 2010 report on the British Cycling Economy, compiled by the LSE and commissioned by Sky and British Cycling, said that in 2010, some 3.7 million bicycles were sold in the UK, with a total retail value of £1.62 billion. UK-made bikes accounted for £51 million of that figure – just 3 per cent of the total.
Where do the other 97 per cent come from? Well, as this article from the blogger Inner Ring published in 2012 highlights, even if you are buying a mid-to-high-end bike from a company such as the US’s Specialized, say, or Italy’s Pinarello, the likelihood is that the frame will have been made in China or Taiwan.
Indeed, the UK is Taiwan’s third largest export destination for bicycles, after the US and the Netherlands, and the country claims to have a 26.1 per cent share of the British market.
Other Asian countries including Cambodia are also seeing their bicycle industries grow. India, too, has an important bicycle manufacturing industry – and it is one that is now targeting growth in Europe, including the UK.
Hero Cycles, one of the world’s largest bicycle makers – it vies for top spot by volume with Taiwan's Giant – recently announced plans for a global design centre in Manchester, where last year it bought Avocet Sports, which became its first purchase outside India.
Steel tycoon Sanjeev Gupta, meanwhile, said he plans to revitalise the UK’s own bicycle manufacturing industry through the acquisition of West Midlands-based Trillion Cycles, which he has moved to a new base in Leamington Spa.
Contract manufacturing extends to components, too – the saddle on your bike, for example, was almost certainly made by Velo at one of its factories in its home country Taiwan, or in China.
That doesn’t necessarily mean that your bike will have a big “Made in China” sticker on it. World Trade Organization (WTO) rules allow that in certain cases where finished goods are assembled in a certain country even if many of the components come from elsewhere, that the country of assembly is deemed the country of final manufacture, so you could instead have “Made in Italy.”
What about fees and duties?
Which brings us to tariffs. A fiendishly complicated set of rules governing trade between different countries and which, while typically not involving the end consumer – they are absorbed along the way in the supply chain – will, once we leave the EU, raise the price of bikes coming from the continent.
By how much is anyone’s guess. The director-general of the WTO, Roberto Azevêdo, speaking before last June’s referendum, warned that “Russia’s accession to the WTO took 20 years.”
The UK is in a different, but unprecedented, position. We are a member of the WTO in our own right and a part of the EU. Our trade deals with other countries are negotiated through the European Commission, however, so we are in effect starting from scratch.
Azevêdo warned: “It will be a very high risk bet to hope that negotiations would be quickly completed and that negotiations would be uneventful,”
Currently, the single market means that there are no trade tariffs on goods, including bicycles, accessories and clothing, imported to the UK from fellow EU member states, and vice-versa. Clearly, that is going to change.
Some have suggested that as an interim measure following Brexit, the UK and countries in the EU, pending an actual deal being struck, trade on the basis of the tariffs generally applying to non-EU countries.
So, for bicycles – complete or frames – that’s 14 per cent. On parts and components, the standard tariff is 4.7 per cent. That means the cost to the consumer of bikes deemed to have been made in Europe is likely to rise – and you already have to factor in price increases that have happened due to the decline in value of the pound since June.
Cheap bikes from China?
The EU currently has a punitive trade tariff of 48.5 per cent on bicycles made in China, to help protect the bicycle industries of its member states by preventing the market being flooded with cheap Chinese-produced bikes – which is what Reid predicts on BikeBiz may happen in the UK once we have left.
That means that at the lower end of the market, we could see cheap bikes from China coming in. And with incomes likely to be squeezed and the cost of living rising, that could prove attractive to cash-strapped consumers.
(As a side note, the ongoing row between the EU and China over tariffs on bicycles is the chief reason that WTO talks on the proposed Environmental Goods Agreement, which could reduce or remove tariffs on them altogether, failed last month.)
Price rises, higher household outgoings and general economic uncertainty are likely of course to have another effect on the UK cycling market – people deferring or even abandoning planned purchases, or downgrading to a different, less highly specced model than the one they may have initially planned to buy.
Over in the United States, of course, tariffs have regularly been in the headlines in recent months, with Trump threatening to use them as a so-called “border tax” to discourage the practice of “off-shoring” – American businesses having goods made in factories abroad, then importing them to sell to domestic consumers.
While it is the motor industry that has received most attention in this regard, with the incoming president threatening crippling tariffs on companies such Ford unless they repatriate production, other sectors too will come into the firing line if Trump pushes through with his plans.
(Incidentally, Trump's claim that offshoring is killing American jobs is controversial, to say the least.)
Reid points out on BikeBiz that 98 per cent of the bicycles sold in the US originate from abroad, the vast majority in the Far East – and if the country’s bike industry comes into the sights of the Trump administration, it would be ill-equipped to repatriate production.
The result of that, Reid says, would be higher prices and scarcer availability – something that would also affect the British, not just the US market.
Whether Trump will follow through on his rhetoric remains to be seen, and the whole issue of Brexit of course is riddled with uncertainty – just today, the Supreme Court has ruled against the government and said that Parliament must debate whether to trigger Article 50.
In the meantime, if you are itching to get your hands on a new ride, you can take a look at road.cc technical editor David Arthur’s article from last week in which he lists some Brexit-beating bargains currently to be had.
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