John D'Addario III

MAY 28, 2019 I D'ADDARIO I Q&A I BY KATIE KAILUS

D'Addario Combats China Tariffs

Earlier this month, the Trump administration raised tariffs to 25% on $200 billion worth of goods manufactured in China. While many big-box retailers have developed strategies to handle the impact of the trade war thus far, as of May 23, many retailers — including Macy's and Walmart — have announced that they will begin raising prices due to the tariffs.

Just as nationwide big-box retailers are feeling the effects, so are many MI companies. While the majority of D'Addario's products are manufactured stateside, the New York-based manufacturer has felt a crunch when it comes to its instrument cable business. D'Addario's co-President John D'Addario III spoke to Music Inc. on how his company is handling the tariff situation and what plans they have to combat it.

MI: How is the current trade war with China
affecting D'Addario?

JD: One aspect of our business that we have working in our favor is that we've made a big commitment to producing 95% of our products here in the U.S. Therefore, the amount of sourcing we do for our business is relatively small. However, more than anything, the part of our business that the most recent additional tariffs are impacting is our instrument cable and connectors business. We import a lot of cables and connectors, and in light of the trade war, we're in the process of transitioning our cable supply, in particular, from outside of China.

MI: How will these tariffs affect dealers and consumers? Do you anticipate having to raise prices at all?
JD: I think everyone is going to feel a little bit of price and margin pressure. Sadly, these measures are used a lot. Though we're exploring price increases, we are making every effort possible to avoid them in an effort to remain competitive.

MI: What plans do you have to combat the tariffs?
JD: Like I mentioned, we're exploring price increases to mitigate it,
but we're also exploring alternative suppliers outside of China, including Vietnam.

Another way we're combating the tariffs is through a Duty Drawback Program. As part of this program, we are eligible for a refund on any tariffs paid on imported goods that we subsequently export. The one downside is that this program requires a tremendous amount of effort and coordination. That being said, the recently enhanced tariffs are forcing us to take advantage of it. Additionally, in an effort to avoid duties all together, we're expanding our drop-ship program. For products that we import from China, we're providing our international distributors with an incentive to directly import them from our authorized suppliers. MI