Trump's proposed tennis ball tariff represents a grand slam of terrible trade policy
Want to know how ill-conceived President Trump's proposed China tariffs are? Look to the tennis ball tariff.
It represents a sort of grand slam of terrible trade policy.
Head Penn Racquet Sports, a division of Colorado-based Head USA Inc., makes the best-selling tennis ball in the United States. It sells about 65 million balls under its "Penn" brand each year, representing nearly two-thirds of all branded tennis ball sales in the United States.
Like other brands, Penn balls used to be made in the United States. One by one, though, all the factories left.
Why? Because tennis balls are low-price, low-margin products, basically commodities. And they exhibit high "elasticity" not just in their bounciness but in their price: That is, tennis ball buyers tend to be very sensitive to small changes in price, and they don't have a lot of brand loyalty. If Ball A is 50 cents cheaper than Ball B, most customers will buy Ball A. So trimming costs -- for example, by cutting labor costs -- confers a huge advantage.
About a decade ago, racquet sports division president Greg Mason says, Head became the last U.S.-based tennis ball manufacturer to move production abroad. It invested about $25 million in building a state-of-the-art facility in China, which makes around 100 million balls each year for the global market.
Then, last month, Trump announced plans to impose a 25% tariff on the remaining $300 billion of Chinese imports so far untouched by his trade war. The thousands of items on the list are primarily consumer products, including clothes, shoes, toys, cellphones -- and yes, the humble tennis ball.
Multiple Head products would be affected, including higher-ticket items. But Mason is especially concerned about tennis balls. Given the thin margin on balls, the company could not eat the cost of the tariff or expect the retailer to do so; instead, the 25% tariff would be passed along to consumers.
"Prices will go up immediately," Mason told me. "Our entire business would have to be relooked at."
So Head decided to, er, make a racket.