At D’Addario & Company’s headquarters, situated about 40 miles east of New York in Farmingdale, company executives gather every week to meticulously plan their responses to the ongoing global trade dispute spearheaded by President Donald Trump. John D’Addario III, the company’s CEO, refers to this team as the ‘trade war task force’. A few months ago, the tumultuous nature of the trade war necessitated daily meetings, but with increased adaptability to these unpredictable circumstances, weekly resolved strategy sessions have become the norm.
D’Addario, famed for their products employed by some of the world’s most renowned musicians, is not alone in these corporate adjustments spurred by the economic climate. Trump’s tariffs inaugurate unforeseen difficulties and additional expenses in global supply chains, Inciting significant changes in long-established operational processes. For an enterprise with more than 50 years experience under its belt like D’Addario, this translates into a thorough examination of all business aspects to gauge its vulnerability in the evolving commercial landscape.
And the challenge is not simple or static. The dynamic tariffs, both implemented and impending, require businesses to constantly re-evaluate their strategies, as what succeeds one week could prove obsolete the next. For instance, a minimum tariff of 10% on most imported goods has been imposed. Even more drastically, products such as steel, aluminum, cars, and various car parts are facing increased rates.
This fluctuation has escalated the effective U.S. tariff rate close to 20%, the rate reported by Yale’s Budget Lab, a figure that harks back to the 1930s. But D’Addario, which operates six U.S. factories and draws a phenomenal $235 million in annual sales, squaring off against such obstacles is well within their capacity. Their domain includes a quintet of factories congregated in the Long Island suburb, one of which generates a staggering 750,000 diverse musical strings on a daily basis, ranking the company as a global leader of the respective industry.
Boasting a dedicated and extensive following (consisting of both professional and amateur musicians) across a plethora of countries, D’Addario exports a substantial amount – about 45% of their total manufacture – to over 120 countries around the globe. Their largest foreign clientele reside in Japan. Despite the deep connections they’ve established over time, their vast international operations imply recurrent and novel challenges against the backdrop of the current economic situation.
For example, a recent trade war task force discussion focused on Japanese Oak, or Shira Kashi Oak, a unique wood integral to crafting D’Addario’s signature drumsticks. The material is known and sought after for its durability and one-of-a-kind feel, even making some drummers reluctant to use any other kind. However, upcoming tariffs on Japanese goods are posed to spike the cost of this material by 15% as of the first of August.
Consequently, the task force, comprising nine leading D’Addario executives, deliberated the situation and decided to pass on the tariff’s cost to the consumer. The uniqueness of the materials used to manufacture these drumsticks allows for such a decision, as their customer base would willingly accept the price increase in exchange for the product they prefer. John D’Addario III confidently speculated that users are ready to pay that extra cost for the distinctive quality of the Shira Kashi oak drumsticks.
However, not every tariff matter leads to such a satisfying resolution. One thorny issue was the prospective 50% tariff on copper announced by President Trump. This industrial metal forms a vital part of D’Addario’s production as they utilize considerable amounts of copper rod in manufacturing various musical strings. The exact origin of the copper they source remains ambiguous, but the looming tariffs hint towards a cost increase for their supplies regardless of their source.
Unlike the specialized Shira Kashi oak drumsticks, copper strings are a commodity, a run-of-the-mill product that faces stiff competition in the marketplace, leaving the possibility of transferring the tariff costs on to the consumer slim. The task force, however, is unrelenting in its pursuit of an optimal route out of this fiscal maze and has discovered a few workarounds to avoid some of the tariffs.
By altering the shipping procedure for Chinese-produced goods, they managed to dodge some of the tariffs triggered by the sharp incline in U.S. tariffs on China. The change involves shipping goods directly from their Chinese factories to international clients instead of routing these goods to their Long Island warehouse first. This change alone has managed to mitigate the impact of U.S. tariffs on around 5% of their total sales.
Moreover, their innovative task force has sought permission to create a free trade zone within their Farmingdale-based warehouse as part of their strategic reaction. By using this zone to store imported products, they will only be required to pay tariffs when these products are needed for domestic purposes. The company intends to leverage this zone for assembly work as well.
To further capitalize on this setup, they propose importing individual parts from China to be merged with domestically sourced parts within their free trade zone, allowing for re-exportation free from tariffs. This is just one example of their ongoing strategic efforts to navigate the choppy waters of the global trade scene without compromising on their quality or upsetting their loyal customer base.
Another initiative targeting the Chinese market aims to change their approach to selling musical strings. Traditionally, these strings had been manufactured and neatly packaged for retail in New York. The new model proposes shipping the strings to China in bulk and entrusting a Chinese logistics firm to undertake their final packaging. The lower tariff rate applicable to the bulk strings than the retail-packaged ones further reduces their tariff-related expenses.
Despite these extensive efforts, the company still expects its total tariff bill for the end of the year to reach $2.2 million, a steep climb from last year’s figure of $700,000. Part of this increase can be attributed to the new costs associated with importing cane from its own plantations in France and Argentina, a key material used in creating woodwind reeds. The current tariff on imports of cane stands at 10%, with projections of a substantial rise in the near future.