Inside a US guitar string maker's strategy to navigate the trade war

“We literally call it our trade war task force,” said CEO John D’Addario III.

Back in April, Trump was generating so much turmoil on trade that they met daily. But as they’ve gotten the hang of responding to constantly changing rules, they’ve scaled back to meeting weekly to map out plans to protect their business and take advantage of opportunities that may arise.

Strategy sessions like this are happening across corporate America as Trump's tariffs create kinks and extra costs in global supply chains built up over decades. For D’Addario, a family-owned business that has been around for over half a century, this has meant looking at every aspect of their business to assess exposure, resulting in strategies that include setting up their own free trade zone and rerouting shipments to avoid tariffs, Reuters reporting shows.

U.S. companies are learning there are no quick fixes to their trade woes. What seems to work one week may be outdated the next as the levies, or threats of levies, shift.

In the past few months, the U.S. has slapped a minimum 10% tariff on most imported goods, with higher rates on steel, aluminum, cars, and car parts. The trade war so far has pushed the effective U.S. tariff rate to around 20%, according to the Budget Lab at Yale, a level not seen since the 1930s.

D'Addario is one of the world’s leading makers of music accessories, with annual sales of $235 million and six U.S. factories. Five of those plants are clustered in this Long Island suburb, including one that churns out 750,000 strings a day for everything from bass guitars and banjos to violas and mandolins.

The company has a devoted following among professional musicians as well as amateurs. John Oates--of the former rock duo Hall & Oates--uses their strings, as does jazz guitarist Pat Metheny and country singer Chris Stapleton.

Neil Peart, the late Rush drummer, used D'Addario's drumsticks--and the company still sells sticks that were designed specifically for his playing style and bear his signature. A set of those hung on the wall of the conference room where the task force met one recent morning.

While the company makes nearly all their products in the U.S., their supply chain and distribution are global. They export nearly 45% of what they make to 120 countries. Their biggest foreign market is Japan.

TRADE WAR ROOM

D’Addario's global footprint means they keep finding new vulnerabilities. For instance, one item on the agenda of the recent meeting was Japanese oak.

D’Addario uses the wood, known as Shira Kashi oak, to craft a line of drumsticks coveted for their durability and feel. Some drummers won’t play anything else. But the cost of the material is set to jump on August 1 if Trump makes good on his vow to push through a wide range of new tariffs, including 25% on Japanese goods.

“There isn’t really any good alternative—people want their Shira Kashi oak,” Hank Sheller, the company’s strategic sourcing manager, told the group of eight other executives gathered around a conference table three days after Trump announced the new levies on Japan.

The group concluded that, in this case, a price increase to offset tariffs would be readily accepted by consumers because the wood is so unique.

“That’s just something people will pay for,” said D’Addario.

Other topics under discussion were more difficult to resolve, like what Trump's promise of a 50% copper tariff, announced the day after the Japan duties, would do to their costs. D’Addario doesn’t buy raw copper but consumes large amounts of copper rod that it draws out into ultra-fine thread used to wind many types of musical strings.

“The problem is we don’t really know the origin of the copper we’re getting—whether it’s from a domestic source or imported,” said D’Addario. “But it’s more likely there will be a cost increase for us, even if it is a U.S.-based supplier.” And unlike Japanese oak, copper strings are a commodity, so raising consumer prices to cover the tariff cost is unlikely.

The task force has found ways to sidestep some tariffs. For example, after the U.S. started raising tariffs sharply on China, they shifted how they ship Chinese-produced goods to customers outside the U.S.

It previously imported most of those goods, which account for about 5% of their total sales, to its warehouse on Long Island, where they were stockpiled and then sent on to end customers as they filled orders. The task force realized they could get around U.S. tariffs by having the goods sent directly to foreign customers from the Chinese factories.

It helped that the Chinese factories were eager to help. In the past, they resisted directly shipping smaller orders.

“As a result of tariffs, our Chinese suppliers suddenly became much more accommodating,” said D’Addario.

'WE'LL SEE WHAT HAPPENS'

The task force has also applied for permission to create a free trade zone in part of their warehouse in Farmingdale, which will allow them to hold imported products and only pay tariffs when they need to be used to supply domestic orders.

The company also plans to do some assembly work there. “We’ll be able to bring parts from China and assemble them with domestic parts—and then you could re-export that without paying any tariffs,” said D’Addario.

Though that won’t be a quick fix. D’Addario estimates it will likely take more than a year to get the necessary approvals and to build that facility, which must be secured with fencing and special monitoring equipment.

Another effort is aimed at changing how they sell musical strings in China. Until now, they’ve produced them in New York and had workers here put them into retail packaging. They’re testing sending the strings in bulk to China and having a logistics company there do the final packaging.

Since the value of bulk strings is lower than the same number of strings packaged for retail, the tariff bill is cut. Savings like that will be crucial if the Chinese retaliate against U.S. tariffs after August 1, said D'Addario.

“At least we’ll have the capability proven,” he added, “so we’re able to respond to whatever happens.”

Despite the task force’s efforts, the company’s tariff bill is still expected to hit $2.2 million by the end of this year, compared to just $700,000 last year.

Part of that is new costs to import cane from the company's own plantations in France and Argentina, which it uses to make woodwind reeds. The tariff on cane has risen to 10% and is set to go much higher.

“Trump said he’ll put a 30% tariff on Mexico and Europe, so we’re expecting anything from our plantation in France to cost even more,” said D’Addario. “Assuming it goes through. We’ll see what happens on August first.”