Phillip Lucas on trade tariffs: The consequences of uncertainty

In the first of a series of features with BikeBiz, Phillip M Lucas shares insights into the ongoing, and potentially long-lasting, impact of trade tariffs.

This feature sees Lucas explore medium and long-term consequences – those which remain, long after any recalibration of, and reconciliation of, international trade relationships.

Editor’s note: Originally published early on Monday, 12 May 2025, after 14 days of research and writing, the content of the feature became almost immediately outdated, with China-USA tariff conversations delivering new news. 

Here Lucas adds a Tuesday, 13 May update, which clearly demonstrates the point in the headline of the original feature: “The consequences of uncertainty“!

Taking the new news into consideration, Lucas adds:

The Sino-American agreement now sets a new 30% for bikes. This, yet again, changes things.

This weekend’s 90-day truce from a Sino-American meeting in Geneva offered another delay, while imposing a temporary 30% U.S. import tax. In short, this just prolongs the suspense and uncertainty.

This situation is beginning to resemble a Schrödinger’s cat economy. We’re all trapped in the box with the cat—and we won’t know if it’s alive or dead until the 90-day truce between the U.S. and China expires. But either way, the cat (our bike industry) is likely to emerge wounded, even if long term prospects is “only” a 30% (margin-swallowing) tax on all business going into the USA. A tariff of 135% will be a unsurmountable barrier, as will the recently offered 80% – but even if tariffs are cancelled or reduced to levels that make ongoing business viable, our memory of the volatile jumping around is still strong.

Confidence has been shaken.

Contingency plans are essential.

If tariffs shift again, it may be sudden. This suspended state is damaging in itself. And even if the storm passes, trust in stability won’t recover quickly. That erosion of trust is its own lasting impact.

How will the U.S. trade war impact us in Europe? Don’t panic. Do prepare.

Since the start of the US tariff escalation, the global bicycle industry finds itself navigating not just its already known challenges, but an amplification with new layers of prolonged uncertainty.

Whereas most headlines have focused on how the recent U.S. tariff policy affects American consumers and Asian supply chains, the wise will realise impacts will start rippling across Europe as well. The central issue isn’t simply the tariffs themselves, but the financial, operational and consumer confidence consequences. The United States, as the world’s largest consumer economy (accounting for over 26% of global GDP), exerts a uniquely outsized influence on global financial liquidity, supply chain structures, investment timelines, and demand forecasts.

Just this weekend, a new 90-day update came from a Sino-American meeting in Geneva, extending uncertainty. The situation is beginning to resemble a Schrödinger’s cat economy. We’re all trapped in the box with the cat—and we won’t know if it’s alive or dead until the 90-day truce between the U.S. and China expires. But either way, the cat (our bike industry) is likely to emerge wounded. Even if tariffs are eventually avoided or reduced to levels that make ongoing business viable, confidence has been shaken. 

Veteran observers will note the tactics in play follow a familiar script from Donald Trump’s own book, The Art of the Deal—leverage uncertainty, play extreme, and make media-friendly announcements that position negotiation retreats as victories. The 145% threat could be bluster; the 90-day pause could signal backpedalling. But while the situation may yet blow over, it remains impossible to plan responsibly without preparing for impact. 

So, contingency plans must be created. If duties resume, they could again change with little time to adapt. This suspended state is damaging on its own. Meanwhile, there’s a real chance this entire crisis could deflate, and we will all sail on, frazzled and much less trusting of the future. That reduction of trust will impact us, too. 

US volatility breeds EU Uncertainty.

When the trans-Pacific finance world is upset, the global economy feels the consequences. First of all, uncertainty is worse than bad news, and it has rapidly become the new normal. With bad news, we adapt, reprice, and find a way forward. But with uncertainty, entire economies stall. Investment freezes, decisions are deferred, and systems seize up. As economist Adam Posen notes, “the damage from uncertainty is longer-lasting than the damage from the tariffs themselves.” This means that ongoing uncertainty will lead to a long-term market depression, fewer launches, lower margins, and a weaker recovery. This is already happening, with large investments being deferred indefinitely and appetites for resumption significantly reduced. 

April’s sudden announcement of, and strange pause on, margin-crushing US duties on goods from core cycling supply regions like China, the EU, Vietnam, Taiwan and more, sent shockwaves through the industry. That rapid swing would have been destabilising enough, but it was followed by retaliatory escalation from China. This tit-for-tat intensification, seemingly rooted in preserving political credibility more than economic pragmatism, has locked the two largest trade actors into a costly and absurdly escalating stand-off which will have global consequences if not resolved immediately.

European brands and retailers focused on domestic markets may feel insulated at first glance. After all, how will a trans-Pacific trade issue affect European bike riders? But in a globalised economy, nobody is immune: As the saying goes, when the US sneezes, the World catches a cold. The cycling industry depends on shared supply chains and production economics that rely heavily on predictable global demand. 

In a Geneva meeting this week, the U.S. and China agreed to a fresh 90-day truce, pausing further escalation. While that offers a brief window of stability, it doesn’t erase the uncertainty. If the U.S. does impose a 145% duty on Chinese-manufactured bikes, frames, and components, the world’s largest supply channel will be cut off from its largest consumer market. Even this week’s media-friendly suggestion that the U.S. might settle at “just” 80% as a goodwill gesture remains margin-crushing by any realistic measure. And while components from other origins may be rerouted for U.S. import via final assembly hubs, Chinese-origin goods still face an eventual and potentially steep barrier.

But even if tariffs never return, the bigger threat may be financial contagion. When a region representing a quarter of global GDP begins to wobble, capital tightens, interest rates rise, and economic momentum stalls. That retreat from risk quickly spills into employment. Confidence doesn’t require mass layoffs to crack; rather, just enough cancelled contracts, hiring freezes, or cost-cutting is enough to rattle consumers.

The EU need not panic—but it should prepare for a softer outlook. Even without a full-scale crisis, European consumers will likely grow more cautious. Once doubt sets in, buying habits shift. “That would be nice to have” becomes “I can do without it”—especially for discretionary purchases like bikes. First-time buyers hesitate early. But even committed cyclists may pull the brakes once uncertainty becomes undeniable. And so, both sides of the market take a hit: supply tightens, while demand retreats.

Could we see a new clearance wave?

We mentioned rerouting of goods, and it is now possible that a wave of Chinese-origin parts, frames, and gear will at some point be redirected into other markets. In fact, some will already be en route to redirected marketplaces. At 17.6% of Global GDP (#2 region after the USA), Europe’s size and purchasing power, plus well-established cycling markets and logistics, make it an attractive destination for any excess goods that need to be sold to anywhere, quickly. While we can’t predict the scale and volume of possible redirected products from China yet, if they come, they will arrive to a saturated entry to mid-level market, and a cautious high-end market. Because much of this inventory was financed, the pressure to convert it into cash will often outweigh margin concerns. When large volumes of overstock meet hesitant or less motivated consumers, the playbook is predictable: discounting. And so, we may soon relive a wave of discounted excess parts from grey market traders and webshops like we saw in 2022 and 2023, all over again. 

This may be great for consumers and could help draw in new riders who otherwise might not have considered taking up the sport (even in the current market saturation), but it will make planning and profitability a challenge for European retailers and distributors. The perceived value of new bikes may fall further, undermining full-margin high-end model launches and threatening recovery momentum across the generally weak mid- and lower-tier market segments. 

But consumers may face longer-term downsides, particularly in product choice, pricing and innovation. While a flood of discounted bikes and components may feel like a win in the short term, it comes at a cost. Brands bracing for volatility pause or cancel risky projects, leading to less innovation. Sea Otter, Taipei Cycle and Riva gave us a burst of new launches this year, and Eurobike may still bring us products that have been in the pipeline since COVID. But if trade volatility doesn’t resolve itself by this summer, the wave of innovations may start to run dry. If consumer confidence declines over the next few years, model years might be defined in greater part by safe bets and cosmetic refreshes, and in lesser part by bold new designs and category breakthroughs. Just when the market needed fresh motivation to bring riders into shops, creativity may be sidelined. The short-term deals might feel exciting, but the longer-term effect and loss of production volumes from a cooled-down US market may bring a more constrained and conservative industry that offers less, while asking for more.

European brands will see global and local knock-on effects.

Assembly and manufacturing challenges stemming from the U.S. trade war won’t be limited to China. European brands that produce in the EU and export to the U.S. now face a strategic fork in the road. Whether the U.S. enforces the full tariff suite or sticks with a 10% baseline, export volumes are expected to fall. A 10% duty alone reduces competitiveness and will cut unit shipments. Even if tariffs are later lifted, the damage is already done: the broader U.S. economy has been destabilised, and enough uncertainty has been injected to suppress confidence and spending through at least one presidential term.

That matters here in Europe. Brands relying on the U.S. to absorb production volume may soon find themselves holding excess inventory. If those bikes don’t ship out, they’ll stay in—meaning EU-made bikes destined for export will pile up in European warehouses or enter the domestic market, intensifying price pressure just as retailers and distributors are trying to recover. What begins as an export problem quickly becomes a local one.

If tariffs are applied unevenly—e.g., Mexico or Taiwan get exemptions while the EU doesn’t—EU bikes will become less competitive in the U.S., forcing brands to retain in-progress or completed stock. We may soon face the same liquidation risk now looming over Chinese inventory.

Equally concerning is the position of European brands assembling in China for U.S. delivery. That inventory is now hit by a 135% duty, effectively blocking its route into the U.S. Unless it can be reworked to meet EU country-of-origin rules for sell-through to the USA, much of it may be redirected into Europe like the rest of the Chinese overproduction from the last chapter. If other destination markets (e.g. Japan, Korea, Australia, etc) are already overbooked, the backup lands on our doorstep and might end up being cleared at steep discounts.

There is a narrow upside: if U.S. tariffs on China stay high while the EU remains exempt, demand may shift toward European-made bikes. EU assembly facilities and brands with strong local production credentials could become attractive to U.S. retailers seeking stable alternatives. But even that scenario carries risk, facing higher costs, less lead time, and exposure to policy reversals.

In short, European brands, retailers, and distributors must prepare for all three outcomes. Best case, some benefit from redirected U.S. demand. Worst case, excess stock floods the European market, pushing prices down and extending the post-COVID slump. The opportunity and the risk are two sides of the same coin, and the fallout won’t respect borders.

Time to plan and consider what is coming.

Beyond the likelihood of redirected stocks from China already inbound from the first Sino-American flare-up, none of the above will be sure until this summer.

Yet, Retailers, distributors, and OEMs alike will be preparing for volatility. Distributors and Shops should be wary of short-term margin compression from a wave of clearance products and prepare for turbulent B2B cycles by watching seasonal purchase behaviour closely and managing stock levels accordingly. 

As discussed, when uncertainty dominates the landscape, brands refocus on core products, streamline SKU complexity, and shift development toward proven platforms. So even if the tariff escalation blows over and consolidates at around 10%, we will continue with an ongoing raised level of caution due to the displayed unpredictability of US policy. While this year’s trade shows bring a refreshing number of new products, ongoing uncertainty will slow down the innovation cycle. If market demand softens, layoffs can occur, also amongst R&D and engineering staff, further reducing innovation capacity. Companies will safeguard cash flow, de-risk forecasts, and align their offerings to what is easiest to sell and finance. This is how industries survive prolonged turbulence, but it means that interesting or category-defining products that could have reinvigorated consumer excitement may be pushed years down the road. 

For the foreseeable future, many brand model years could be defined by safe bets and colour changes. The real cost of uncertainty may be not just economic, but creative. As mentioned earlier, whereas the near future possibility of a new wave of discounts will excite some riders, tomorrow’s constrained collections and delayed innovations may quietly disappoint, which risks ultimately amplifying today’s scenario of market saturation and general consumer disinterest in current product portfolios. This may happen just when the market really needed fresh motivation to bring new riders into shops and climb out of the post-COVID slump. 

Even in mainland Europe, where the cycling market functions as a self-contained microclimate of demand unaffected by US consumer choices, a global economic slowdown and tighter financial conditions across the board will have an impact. Employment uncertainty will reduce discretionary spending while credit may become harder for brands, shops and consumers alike to access. As a consequence, reduced financing to secure production runs (even for EU-bound bikes) may lead to a triage of product ranges. What might have been a phase of reinvestment in product, tooling, or dealer expansion could now give way to a more conservative mode, where even risk-adjusted spending becomes difficult to justify. 

As Harvard’s Willy Shih has noted, supply chains don’t simply bounce back when policies shift—they reroute slowly, often permanently, and only when stability returns. In between now and then, they will cope as best they can and reduce economic risk. Governments may start doing the same and start trimming any budgetary expenses deemed non-essential. Policy uncertainty may creep into mobility incentives. An early indicator of this just came to light, as Finland is considering rolling back bike-to-work tax subsidies. Brands that relied on such schemes to balance pricing or drive commuter category volumes may need to diversify and provide more financial services as part and parcel of the consumer purchase journey, much like automotive sales.

How do we move forward?

This is not a drill. Global uncertainty is the new normal, and we will see ripple effects in domestic European markets. The bike industry may not like the game, and after years of post-pandemic strain, it’s tired. But it doesn’t get to sit this one out. Those who keep moving—smartly, slowly if needed, but moving—will still be standing when the rules change again (and they will change again).

Europe isn’t just a bystander to global trade realignments. While our political climate may feel less volatile than overseas, the economic undercurrents are deeply shared. The most successful players will be those who treat this moment not with fear, but with sober clarity and proactive planning. Those who stay adaptable, track demand closely, align inventory to real consumer needs, and maintain open inbound and outbound supply chain communication may find steady ground even amid volatility.

In a market like this, profitability becomes hostage to unpredictability. As volatility rises, maintaining margin depends less on planning and more on agility—something many businesses can’t afford to lack. In this cycle, agility isn’t a luxury. It’s a survival strategy.

For shops, the main risk is margin compression. For distributors, it’s both margin and cash flow risk, with amplified exposure if stock devalues too fast. For brands reliant on U.S. export volumes, the risk is operational and existential. But even EU-focused brands shouldn’t assume immunity. If overstock from blocked U.S. exports or diverted Asian inventory starts flowing into Europe at steep discounts, they’ll face downward price pressure, slower sell-through, and reduced perceived value, without ever shipping a single unit overseas.

Below, you’ll find a few tactical ideas for shops, distributors, and manufacturers on navigating this new European market landscape. 

Distributors: Stay Liquid, Agile, and Strategically Diverse

Distributors might be well served to prioritise liquidity and agility. Forecast conservatively and remain flexible in inventory staging, as sudden discount waves can compress margins. Maintain strong cash buffers wherever possible and maintain close contact with retailers to stay ahead of volatile demand cycles.

On import goods, manage foreign exchange risk proactively if you don’t already. Building currency buffers through well-timed exchange conversions can give a few percentage points that will make the difference if margins tighten. Track policy shifts actively; volatility is the norm. 

If you can secure redirected stock from Asia at low cost, act quickly. Adjust pricing early and meld margins with lower-cost replenishment. Otherwise, you risk being undercut by alternative channels that bypass you entirely. And as market demand stagnates, invest in premium brands that serve committed cyclists, as this segment continues to drive up ASPs even though unit sales are in decline. 

Manufacturers: Stay Flexible, Stay Focused

Flexibility must guide manufacturing strategy. Limit financial exposure, pressure partners to allow shortened forecasting cycles, and prioritise modular or near-market assembly to stay responsive. Product renewal should continue—brands that maintain differentiation stand out, even in downturns. Reuse COVID-era tactics like component substitution when you find an option to boost margins, but avoid triggering shrinkflation fatigue by skimping on quality as you do so. Some suppliers created excess stock B2B marketplaces post-COVID; be sure to join them. 

Commercially, reduce dealer risks. If you offer generous margin at lower risk to shops, you offer yourself a greater chance of getting a share of a shrinking pie. Brands that help shops manage exposure while preserving margins will earn long-term loyalty.

Bike Shops: Diversify Revenue, Build Loyalty

For shops, survival means smart diversification: There will always be new potential customers, but most will not be first-time recreational buyers you served last year or the year before, whose appetites are saturated. This may mean updating your window stock and communication style, too.

Financing and low-friction payment tools will be key to ongoing new bike sales if personal and governmental budgets tighten further. Develop second-hand sales and trade-ins to offer this season’s price-sensitive buyers affordable options with good quality. This will also offer the last 3 seasons’ first-time buyers, now less purchase-driven – an enticing upgrade path.

Service and shop-sold used bikes are fast becoming key pillars of the European market. Double down on service and broaden workshop intake across quality and category. Use experienced mechanics to train junior mechanics over the summer; skilled Labour is tightening, and it takes a few months to get new hires proficient. Focus on workshop sales skills to upsell based on real needs and use cases, earning loyalty through consistent, value-driven care. 

Prepare for pricing competition on OE spec parts and a volatile pricing cycle through tight stock planning – then happily install genuine internet-purchased parts… if your local laws and insurance allow for a waiver form. Maintain at least one innovative high-end brand each category of your product mix to keep enthusiasts engaged if mainstream launches slow.