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Tariffs could fizzle fireworks

The escalating trade clash between the United States and China has sent thousands of U.S. companies scrambling to determine whether they can import goods from other countries to escape higher tariffs. But when President Conald Trump threatened to tag large penalties on $300 billion in Chinese imports earlier this month, a sense of panic settled over the fireworks industry. It had nowhere else to go.

"It's virtually impossible for our product to be made anywhere else but in China," said Bruce Zoldan, the chief executive of Phantom Fireworks in Youngstown, Ohio. "If these tariffs happen, it'll be the greatest threat to our industry."

Zoldan met with White House officials on Wednesday to press his case, and he is working on a formal request to be delivered next month that he hopes would exempt the fireworks industry from the penalties. A final decision by the White House could come in late June, in the midst of the fireworks industry's busiest period.

After several months of negotiations between the White House and Beijing that left many believing a truce was within reach, a messy unraveling has left many business executives wondering how to avoid collateral damage.

Trump's showdown with Beijing has nothing to do with fireworks, but they have nonetheless been brought into the fray of the trade war and its headline issues: trade imbalances, government subsidies, intellectual property and global economic health. And while Trump has repeatedly suggested that companies can sidestep the tariffs by moving manufacturing to the U.S., that is not an option for domestic fireworks sellers.

It would take years to replicate the manufacturing base in another country, and fireworks executives are extremely wary about major changes that could upend safety protocols.

And though shipments for this year's Fourth of July celebrations theoretically shouldn't be affected by tariffs, vendors might raise prices anyway, to start making up for what they'll lose once the taxes kick in. And come next summer, after years of record-breaking sales, fireworks might suddenly be scarce.

Fireworks have typically been the province of small businesses in the United States, starting with Italian immigrants who brought the trade with them. But regulatory shifts in the 1970s and '80s all but smothered domestic manufacturing just as demand began to spike, and the businesses that had for generations passed down the craft of making pyrotechnics were forced to primarily become importers.

Today, of the 250 million pounds of fireworks that are imported to the U.S. each year, nearly 95 percent come from China, according to the American Pyrotechnics Association. Trump has not yet imposed tariffs on fireworks, but it was recently added to a list of products that would face a 25 percent penalty if China doesn't reach a broader deal with the White House soon. And if fireworks aren't removed from that list, executives said they will not be able to absorb the costs.

And if the industry can't win an exemption before tariffs take effect this summer, the levy will cut deeply into the revenue streams of legions of small businesses, local economies, and the school group and nonprofits that rely on fireworks for fundraisers.

"The fireworks stands and tents you see in grocery store parking lots and on the roadsides serve as fundraising opportunities for organizations like school boosters, churches and veterans' organizations," the National Fireworks Association said in a news release after the tariffs were announced. "With an unfair tax that serves to raise the cost of firework devices so significantly, we're hurting the very organizations that make up the fabric of America."

In recent years, as states have loosened the regulatory tethers and Chinese manufacturers have raised safety and production benchmarks, fireworks sales have swelled. Americans spent nearly $900 million on sparklers, roman candles and other glowing bursts in 2018 - a more than 300 percent increase since 1998.

But ever since Trump slapped tariffs on $50 billion in select Chinese goods last July, the fireworks industry has waited warily for the second act. Luck held until early May, when the president jolted the trade talks by imposing 25 percent tariffs on $200 billion in Chinese goods. Beijing retaliated with tariffs of its own, and Trump hit back by proposing tariffs on all remaining Chinese imports.

Steven Houser, secretary of the National Fireworks Association, said he's heard from many of the group's 1,200 members, who are frantically trying to understand what's happening.

"They listen to the news and hear them say tariffs and they think the sky is falling," said Houser, who also owns and operates a wholesale fireworks company called Red Rhino Fireworks in Missouri.

The industry - including groups like the National Fireworks Association and the American Pyrotechnics Association - is now mobilizing and hoping to finesse an exemption for fireworks before the list of impacted imports is finalized and the tariffs take effect July 1.

Zoldan said that he tried to emphasize the economic impact of new tariffs when he visited with top White House officials this week. Though "sympathetic" to his argument, he said, they didn't provide any answers. White House officials did not respond to a request for comment.

"I just explained the future potential crisis in our industry," said Zoldan, 70, who has been in the business since he was teen, selling firecrackers to friends out of the back of his mother's Impala. "We help Americans celebrate America's birthday, and the majority of these people aren't those with a high income. If this fourth tranche passes, those people will be hit hard."

Zoldan, who has met with past White House occupants, said his customers include both devout supporters of the president and those with the opposite emotion. He said fireworks cuts through politics and appeals to everyone, but that higher costs because of tariffs could change the industry and put many companies out of business.

The American Pyrotechnics Association on Thursday filed a request to testify during the U.S. Trade Representative's public hearing for the latest round of proposed tariffs on June 17.

"The proposed 25 percent tariff would cause severe economic harm to the industry and municipalities nationwide would no longer be able to afford an Independence Day fireworks display," the APA wrote in the request.

Trump began imposing tariffs on Chinese imports last year, and the economic impact has been mixed. Some companies have worked to absorb the cost, limiting the impact on consumers. But others have passed it along to their customers, and Zoldan said fireworks margins are slim enough that he predicted a similar result.

Because of the way these import penalties work, a typical small business bringing in 10 shipping containers of consumer grade fireworks, would see its tax jump from the $10,000 to $12,000 range to as much as $70,000, said Stephen Pelkey, chief executive of Atlas Pyro Entertainment in Jaffrey, N.H.

Shipping across the ocean adds to the complexity because established companies often place orders several years in advance, meaning they could find themselves owing more than they anticipated or could afford. Even passing most of the tariff on to customers likely wouldn't be enough to neutralize the damage, said Pelkey, who says he supplies holiday fireworks to more than 300 New England communities.

"The average small business is going to see anywhere from $100,000 to $250,000 in additional costs just to deal with current inventories," Pelkey said. "We're not even sure how we're going to deal with it. Everyone is going to feel this pain."

"This will cripple those tiny companies," said Julie Heckman, executive director of the American Pyrotechnics Association.

It's not just small businesses that stand to lose. Come summertime, many nonprofits, schools and churches briefly transform into fireworks retailers to raise money for other ventures they might otherwise struggle to afford: dances, uniforms, events, trips. For most of these groups, the tariffs would eat into an essential revenue stream.

Fireworks shows can also generate interest and maximize receipts at events that might otherwise struggle to attract crowds - minor league baseball games, county fairs, small-town celebrations. Each spring, the Thunder Over Louisville fireworks show at the Kentucky Derby Festival brings about half a million people to the city, according to Aimee Boyd, vice president of communications for the festival. The show costs more than $1 million to stage and pours more than $56 million into the local economy.

"Thunder is the largest event held in Louisville each year, not only because of its attendance, but also through its impact on the local economy. For every $1 spent, more than $22 is generated." said Mike Berry, president and chief executive of the Kentucky Derby Festival. "Fans travel from all over to see Thunder. They're staying here for the weekend, eating at the local restaurants and buying souvenirs. It all helps support the Louisville economy."

Photo from 123rf.com