Once a week, the executives of D’Addario & Company, a manufacturer of strings and drums for the best musicians in the world, meet at the company’s headquarters to design strategies on how to respond to the commercial war of President Donald Trump between the US and the rest of the world.
“We literally call it our working group on the commercial war,” said executive director John D’E, Addario III. In April, Trump generated so much controversy in the commercial field that they met daily.
But, as they got used to responding to the rules constantly, they reduced their meetings to one per week, in order to define plans that protect their business and take advantage of the opportunities that may arise.
Strategy sessions such as this are being carried out in many US companies, since Trump tariffs generate additional difficulties and costs in global supply chains built for decades.
For D’E, a family business with more than half a century of existence, this has involved analyzing all aspects of your business to evaluate your exhibition, which has given rise to strategies such as establishing your own free trade zone and diverting shipments to avoid tariffs.
American companies are learning that there are no easy solutions for their commercial problems. What seems to work a week can be obsolete to the next, as the levies change or new threats arise.
In recent months, the US has applied a minimum tariff of 10% to most imported goods, with higher rates for steel, aluminum, cars and auto parts. The commercial war has raised to date the US effective tariff to about 20%, according to Yale’s budget laboratory, a level not seen since the 1930s.
D’E, Addario is one of the main musical accessories manufacturers in the world, with annual sales of 235 million dollars and six factories in the US. Five of these plants are in a Long Island suburb, including one that produces 750 thousand strings a day for all types of instruments, from low and banjos to violas and mandolinas.
The company has a faithful clientele, both among professional and fans. John Oates, from the former rock Hall & Oates duo, uses his strings, as well as Jazz guitarist Pat Metheny and Country singer Chris Stapleton.
Neil Peart, the late Rush drummer, used the d’Addario’s drumsticks, and the company still sells models specifically designed for their style, which carry their signature. A game of these hung on the wall of the conference room where the working group a recent morning met.
Although the company manufactures almost all its products in the US, its supply and distribution chain is global. They export about 45% of their production to 120 countries. Its largest foreign market is Japan.
THE ‘COMMERCIAL WAR’
The global presence of d’E of Addary implies that new vulnerabilities continue to emerge. For example, one of the issues of the recent meeting was the Japanese oak.
D’E, Addario uses this wood, known as Oak Shira Kashi, to manufacture a line of boquetas coveted by its durability and touch. Some drummers do not use another wood. But the cost of the material will be triggered on August 1 if Trump fulfills his promise to impose a new round of tariffs, including 25% of Japanese products.
“There is really no good alternative: people want their oak Shira Kashi,” said Hank Sheller, strategic supply manager, to the group of eight executives gathered around a conference table, three days after the presidential announcement.
The group concluded that, in this case, an increase in price to compensate for the tariff would be accepted by consumers, since wood is unique.
“It is something for which people are willing to pay,” said D’Addario.
Other discussion issues were more difficult to solve, such as the impact of the 50% tariff to copper, announced the day after the tariffs to Japan. D’E, Addario does not buy rough copper, but acquires large amounts of copper rod, which then transforms into ultrafine thread to roll musical strings.
“The problem is that we do not know the origin of the copper we receive, if it is national or imported,” said D’E, d’Addario. “But our cost is likely to increase, even if it comes from an American provider.” And, unlike Japanese oak, copper strings are a basic product, so it is unlikely to transfer that cost to the consumer.
The working group has found ways to overcome some tariffs. For example, after the increase in tariffs to China, they modified the product shipping system manufactured in that country to international clients.
Before, most of these products imported – which represent about 5% of their sales – to their warehouse in Long Island, where they were stored and then sent to the end customers. The group discovered that tariffs could avoid sending Chinese factories to foreign clients.
It was key that Chinese factories accessed. Before, they resisted small orders directly.
“As a result of tariffs, our Chinese suppliers became much more complacent,” said D’E, d’Addario.
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Redefining your strategy
The group has also requested permission to establish a free trade zone in part of its warehouse in Farmingdale, which would allow them to store imported products and pay tariffs only when they are allocated to the national market.
The company also plans to carry out assembly work there. “We can bring pieces from China and assemble them with national components, and then re -export them without paying tariffs,” said D’E.
It will not be a simple task. Addary estimates that it will take more than a year to obtain the necessary approvals and build the installation, which must have special fences and monitoring systems.
Another effort focuses on modifying the way of selling strings in China. Until now, they occurred in New York and packed for retail. Now they are trying to send bullfights and hire a local company for the final packaging.
Since the value of bulk strings is less than the packed, this would reduce tariff costs. Savings like this will be key if China responds with reprisals after August 1, said D’E,
“At least we will have the demonstrated capacity,” he added, “to respond to what happens.”
Despite all efforts, the company’s tariff bill is expected to reach 2.2 million dollars this year, compared to only $ 700,000 the previous year.
Part of the increase is due to new cane import costs from its plantations in France and Argentina, raw material to make reeds for wind instruments. The tariff on the cane has risen to 10% and is expected to increase even more.
“Trump said he will impose a 30% tariff to Mexico and Europe, so we foresee that any product of our plantation in France will cost even more,” said D’E. “Assuming to be approved. We will see what happens on August 1.”
With Reuters information.
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