Amazon is the third superpower heightening trade war

Photo for The Washington Post by J. Lawler Duggan

Skip West, founder of Maxsa Innovations, is shown at his warehouse in Lorton, Va., with a laser-guided parking aid he imports from China.

LORTON, Va. -- Maxsa Innovations, a small business selling electronic gadgets on the outskirts of Washington, was already reeling from the U.S.-China trade war when it realized it had a third superpower to manage: Amazon.

Maxsa, which manufactures many of its products in China, had to start paying 25 percent more to import some goods after the United States introduced tariffs on Chinese-made products last summer. Faced with higher costs, Maxsa says it managed to persuade several small U.S. retailers to pay roughly 20 percent more for the company's wares.

But its biggest customer, Amazon, drove a much harder bargain.

Amazon, which buys products from Maxsa and then sells them to consumers, initially rejected Maxsa's attempt to charge more for a laser-guided parking aid called Park Right, forcing Maxsa to cut off sales to the online retailer. (Amazon founder and chief executive Jeff Bezos owns The Washington Post.)

"Please do what you can to help get this through," Maxsa founder Skip West pleaded in a January email to Amazon, part of an exchange reviewed by The Washington Post. "I felt horrible turning down $18,000 in orders this week."

As President Donald Trump ramps up his trade war with China, other consumer-product companies report similar struggles getting big retailers to budge.

With the internet driving ruthless price competition among Amazon, Walmart, Home Depot and others, large retailers are loath to pay more or to raise their own prices. That leaves importers of Chinese goods caught between the trade war and Americans' quest for the best possible deal.

"Retailers are all about everyday low prices. They want to protect consumers, but they also want to protect their sales," said Jason Trice, president of Jasco Products, a lighting and electronics seller in Oklahoma City. "The Walmarts of the world don't just roll over."

Small and midsize manufacturers without much ability to negotiate price increases with retailers and distributors say they have been absorbing much of the tariff costs themselves.

Jasco, a third-generation family-run business that designs products in the United States and manufactures in China, has had to cut in half monthly bonus payments to its 400 employees and donate less to charity, Trice said. Until last week, Jasco was facing 10 percent tariffs on goods representing 80 percent of its sales. Then Trump raised those tariffs to 25 percent.

Man & Machine, a Landover, Maryland, seller of waterproof computer keyboards, is cutting one workday out of every two weeks to avoid laying people off. "I said, 'We're not going to meet payroll if we keep going like this,' " said founder and chief executive Clifton Broumand.

Scosche Industries, an Oxnard, California, electronics maker, says tariffs cost the company about half of its profits last year. Profit-sharing payments to employees have fallen to close to zero, and the company is desperately attempting to shift production from China to Vietnam, chief executive Roger Alves said.

After two months of negotiation, Amazon agreed to pay Maxsa 5.5 percent more for three versions of Park Right -- a device that attaches to a garage ceiling and beams a laser to a fixed spot below, helping people park in tight spaces.

"Companies of all sizes throughout the supply chain are adjusting to increased costs resulting from new tariffs," Amazon said in an emailed statement. "We're working closely with our vendors to try to make this adjustment as smooth as possible." It declined to comment on its dealings with Maxsa.

Home Depot and the National Retail Federation declined to comment. Walmart did not respond to a request for comment.

West, a gizmo enthusiast named Small Business Executive of the Year by the Consumer Technology Association in 2016, founded Maxsa in 2003. He and his wife, Beth Citrin, run the company from their home in Northern Virginia, where they employ six people.

Many of the company's products are electronic, including a motion-sensing lantern that lights up when a person approaches a home's front door. Others are lower-tech, including the Escaper Buddy, a pair of plastic orange tracks that give drivers traction to dislodge their cars from snow or mud. Says Maxsa's website: "Never stay stuck again!"

A natural salesman who has hawked his wares on QVC, West immediately began showing off his products during a visit to the company's warehouse in Lorton, Virgina, this week. "If you want to add a light outside your house and you don't have an electrician you want to spend $300 for -- two screws, four C-cell batteries, it's a motion activated light!" he said, brandishing a lantern. Thousands of boxes from China and Taiwan were stacked in neat rows, waiting to be loaded onto UPS trucks and sent off to retailers.

Maxsa sells to a variety of distributors and auto-related websites, but over the years Amazon has become its most important customer. So in November, several months after the tariffs took effect, Maxsa asked Amazon for a price increase of roughly 20%.

Some companies use Amazon's platform to sell their wares directly to consumers. Maxsa has a more traditional arrangement, with Amazon buying goods from it and reselling them.

Amazon sells about 100 Maxsa products, about half of which Maxsa makes in China. But the gadgetmaker limited its price-increase request to several versions of Park Right, which fell under a tariff category of goods used for "electrical signaling, safety or traffic control."

The gizmo is one of Maxsa's top sellers, with Amazon ordering hundreds a week. "I'm amazed how many people have trouble parking," West told The Post.

Maxsa initially submitted its request online, through an Amazon portal, and waited for a response. When it did not hear back immediately, Maxsa decided to stop selling Park Right devices to Amazon, rejecting the retailer's weekly emailed requests to order the product at the old prices.

West said he is not sure Amazon really noticed. "We literally stopped selling to them to show them how serious we were, and it didn't seem to matter that much," he said. "We're a little drop in the bucket to them."

Eventually, Amazon rejected the price-increase request, West said. So Maxsa asked an outside marketing firm to contact Amazon in mid-January with a more modest request -- an increase of 13 to 14%. When Amazon did not reply, the marketing firm followed up six days later. "My vendor is really in a tough spot with these items," the firm wrote on Jan. 24. "Can you, please, help us push the tariff price increases through, today/tomorrow?"

Four days later, an Amazon manager replied with bad news. He could not approve such a large increase, he said, especially considering that Amazon's cost to purchase the device was considerably higher than Maxsa's cost to import it.

The manager said Amazon could pay 3% more.

West decided to take over the email exchange, replying the same day. "Please allow these increases of 13-14% to go through so we can start selling (to) Amazon again," he wrote.

Amazon stuck to its 3 percent offer, calling it a fair share of the burden. The Amazon manager also mistakenly referred to Park Right as falling under a 10 percent tariff -- prompting West to immediately set him straight.

The tariff was 25%, not 10, he wrote. He also offered a reassurance: "Of course if the tariffs go away we will lower our prices," West said.

Amazon thanked him for the clarification and said its internal policies dictated that price increases for products facing a 25 percent tariff should not exceed 5%.

After a few more exchanges West managed to nudge that up to 5.5%, but Amazon said it would go no further.

West accepted the offer and started shipping the Park Right again.

As a UPS truck departed from Maxsa's warehouse with a load of boxes for Amazon this week, West said Amazon's pricing affects what other big retailers pay. Maxsa is negotiating a deal with another large retailer, he said, "and they have to be clear they can sell for less than Amazon."

Amazon is "the benchmark," he said, "and everyone sets against it."

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