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Trump's China Trade War Pulls Consumer Tech Into Crossfire

Trump's China Trade War Pulls Consumer Tech Into Crossfire

By Associated Press | Updated: 8 August 2018 12:53 IST

The prices of headphones, speakers, high-tech lighting, and internet service could all go up if the US trade war with China continues.

The Trump administration's hit list of Chinese products facing import taxes includes key components used in gadgets that can be wirelessly operated through a smartphone or another device. The tariffs also will nail networking equipment that makes the internet work.

It remains unclear how much prices might rise, partly because the next round of tariffs won't be imposed until the fall. The technology industry's broad reach and financial heft also complicates the calculation. Apple, Google, Microsoft, and other major technology companies have such diversified product lines and deep pockets that they simply could absorb the additional costs triggered by the tariffs rather than pass them along to consumers.

But even the richest companies will usually only shoulder an ongoing tax such as a tariff for so long before raising prices, said Timothy Sturgeon, a senior research affiliate at MIT's industrial performance center.

Those prices will eventually hit consumers, Sturgeon predicted. "That's how companies work."

Citing national security concerns, the Trump administration has already imposed a 25 percent import tax on $34 billion (roughly Rs. 2.33 lakh crores) worth of Chinese goods, but the impact on electronics was mostly limited to components for TVs and video equipment.

The next volley will drop a 10 percent tariff on another $200 billion (about Rs. 13.7 lakh crores) in Chinese imports , including chips used in consumer electronics devices like those made by JLab Audio, a Carlsbad, California, maker of Bluetooth headphones and speakers that connect wirelessly to phones. The administration's proposed tariffs would affect products that generate 70 percent to 80 percent of JLab's sales.

"Just about any wireless accessory made for a phone is going to be affected," JLab CEO Win Cramer said. "We are going to have to start charging retailers more, and my guess is they can't afford the haircut either. So at the end of the day the consumer is going to pick up the tab."

If JLab passes along the entire cost of the tariffs, a pair of sports earbuds listed on its site at $149 (roughly Rs. 10,200) could end up costing $163.90 (around Rs. 11,200).

That might not sound like much, but Cramer says every dollar counts in a fiercely competitive audio market. JLab could suffer if one of its main rivals, Beats, doesn't also raise prices. Beats is owned by Apple, whose enormous iPhone profits could easily cover the cost of tariffs on Beats headphones. "I don't have anything else to lean on," Cramer said.

Apple didn't respond to requests for comment. Other big companies with products and services that could be affected by the next round of tariffs, including Google and Microsoft, either declined to comment or didn't respond to inquiries.

Stock market investors so far don't seem to be concerned about the tariffs hurting big tech companies.

Apple recently became the first US company to be valued at $1 trillion (roughly Rs. 68.6 lakh crores), and the stocks of both Microsoft and Google parent, Alphabet, are hovering near their all-time highs.

"For the most part, this looks like it will have minimal impact on tech," CRFA analyst Angelo Zino said. He reasons big companies will be able to offset the costs of the China tariffs by tapping into the billions of dollars they are saving annually from the dramatic cut in corporate taxes championed by the Trump administration.

The tariffs could pinch consumers who are embracing one of the hottest trends in tech right now and furnishing their homes with internet-connected speakers, security cameras, appliances, lighting and locks that can be controlled through a smartphone or voice commands.

"If you have a home with any level of intelligence built into it, you are going to be impacted by these tariffs," said Dean Garfield, CEO of the Information Technology Industry Council, whose members include Apple, Google, Microsoft and Facebook.

The first round of Trump tariffs, for instance, forced San Mateo, California, startup Brilliant to raise the price of its smart light switch by 20 percent. The devices, which allow users to control lights and other gadgets around the house, are built by a Chinese company. Each one contains several hundred components affected by the initial round of tariffs, Brilliant CEO Aaron Emigh said.

"Being a young company without enormous financial reserves, we can't afford to lose money when we sell the product," Emigh said.

The next round of tariffs would also hit Arch Systems, a Mountain View, California, startup that makes internet-connected sensors and routers to help manufacturers manage their operations. While the duties won't necessarily require it to raises its prices, Arch Systems CEO Andrew Schuermann nevertheless views them as "potentially catastrophic."

"There's almost no margin of error for this kind of hardware," he said.

Modems and routers key to internet services are also on the next tariff list. Major internet service providers Comcast and AT&T, as well as smaller ones scattered across the US, either declined to comment for this story or said they are still assessing the financial impact of the tariffs.

But Sage Chandler, Vice President of international trade for the Consumer Technology Association trade group, thinks the tariffs could have a domino effect that might push up internet service prices by 10 percent to 20 percent as the costs ripple through the internet's plumbing.

The Trump administration appears intent on further trade-war offensives. Its initial $50 billion (roughly Rs. 3.43 lakh crores) in tariffs on Chinese goods includes $34 billion in imposed duties plus another $16 billion (about Rs. 1.09 lakh crores) that have been announced but not yet enacted. The government has also identified another $200 billion worth of Chinese goods that could be subjected to 10 percent tariffs later this year - although President Donald Trump has asked the US trade representative to consider more than doubling those duties to 25 percent.

Trump has also threatened to impose tariffs on a $500 billion (around Rs. 34.3 lakh crores) worth of Chinese items - roughly equal to everything China exports to the US each year. That could affect major technology products such as Apple's iPhones, which are assembled in China.

The trade war "puts the future innovation and competitiveness of this country at risk," said Elizabeth Hyman, executive vice president for public advocacy at CompTIA, another technology trade group.

Cramer, of JLab Audio, already is bracing for the financial fallout.

"There isn't an American supply chain developed for my products, it just doesn't exist," Cramer laments. "I can't just flip a switch and say, 'OK, I am going to shut off my China supply chain and move it to Arizona now.'"

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