Employees of startup companies work in front of computer screens at an office. (Photographer: Akio Kon/Bloomberg)

Startups Fear That Trump's Tariffs Will Stifle the Next Apple

(Bloomberg) -- President Donald Trump’s tariffs couldn’t come at a worse time for Aaron Emigh and his startup technology company.

The firm, Brilliant, created a new smart controller for home devices that replaces a light switch and is set to launch in two weeks -- right about the time the next round of duties on Chinese imports could take effect.

The company has been developing the product for three years with a plan for pricing and profit margin that was upended when the administration proposed tariffs, which would affect Brilliant’s controller designed in the U.S. and made in China, said Emigh, the chief executive officer. The firm has already raised the price higher than it wanted but not enough to cover the increase in costs, he said.

“As a startup company, you’re overcoming a lot of barriers already,” Emigh said. “You don’t need the government stacking the deck against you as well.”

Emigh is among those who testified Tuesday in Washington on the second of six days of hearings on U.S. duties of as much as 25 percent proposed for $200 billion in Chinese imports. Tariffs have already been imposed on $34 billion of goods and another $16 billion takes effect on Thursday, prompting in-kind retaliation from China.

Almost 350 individuals from companies, trade associations and other entities are testifying, most to oppose tariffs in response to allegations of Chinese theft of intellectual property and other unfair trade practices.

While the administration had said it wanted to avoid consumer products and target industries critical to China’s economic future, companies are lining up to complain that their bicycles, handbags, sports equipment and a swath of additional products across multiple industries are being targeted.

Element Electronics was forced to move some television assembly work outside the U.S. in response to the tariffs, and it will have no choice but shut down its South Carolina facility if proposed duties on imported components are implemented, said David Baer, general counsel.

“This has to be a mistake or unintended result,” Baer testified Tuesday.

Startup companies are especially disadvantaged by the proposed duties because larger firms often have the resources to absorb higher costs and losses and more flexibility with their supply chain than startups, Emigh said.

Venture Funded

Brilliant, based in Nevada and California, secured $21 million in its initial fundraising and agreed with its partners to raise the price of its products by $50 after the administration announced tariffs at 10 percent, Emigh said. The company doesn’t think it can raise prices more, even after Trump has said the duty amount may increase to 25 percent, he said.

Emigh has formed a coalition of 15 new venture-funded hardware companies called Startups for Sensible Trade to advocate for policies that help new businesses. Ultimately, tariffs can hurt the future U.S. economy if today’s nascent companies can’t grow into the next Apple Inc. or Alphabet Inc.’s Google, he said.

“There are going to be a number of companies that are small now but will be meaningful in the future that we don’t want to impede,” he said.

The duties can also threaten new startup facilities. Yanjan USA LLC testified Monday that it launched a new manufacturing business in January in Statesville, North Carolina, making non-woven materials for the feminine hygiene and baby diaper markets.

The company said in a filing posted online that it expected to double its 60 workers once six production lines are installed, but it needs raw materials from China now facing tariffs that can’t be replaced, said Thomas Jarvis, a Washington attorney representing the company.

“It’s reasonable to assume that any startup faced with a dramatic increase in its cost of operations is going to be challenged,” he said in an interview after testifying on Tuesday.

©2018 Bloomberg L.P.