Another month, another round of tariffs. That’s how it’s beginning to feel for electronics manufacturers and distributors that are watching closely as the U.S.-China trade war shows no signs of waning anytime soon.
Most recently, CNBC reported that the trade war has already cost electronics companies $10 billion. And there’s no relief in sight. According to the network, the U.S.-China trade war entered a new phase over Labor Day weekend, when the Trump administration raised tariffs on billions of dollars of Chinese imports.
“That means that when an electronics company imports a TV, or a smart speaker, or a drone from China starting Sept. 1, it will have to pay a 15% tax to the U.S. government,” CNBC’s Kif Leswing writes.
Eventually, this will end up raising prices on gadgets and other products for people in the U.S.
While previous tariffs already in effect have affected electronics, most were focused on parts and components. Now the tariffs are affecting more finished goods. The round of tariffs that went into effect on Sept. 1 placed additional import taxes on smartwatches, fitness trackers, desktop computers, digital cameras, and lithium batteries. This latest round impacts about $52 billion worth of consumer goods.
“Even leading American companies aren’t safe from the tariffs,” Leswing writes. “Apple’s fight to keep its products unaffected by tariffs illuminates what many electronics companies are facing and how they navigate the process. Like most electronics companies, Apple does most of its final assembly in China, leaving it vulnerable to the tariffs.”
Impacting Small Businesses
According to a recent Wall Street Journal Logistics Report, the higher tariffs on Chinese imports are having an outsized impact on small businesses. For example, Wisconsin-based precision machine shop Wiscon Products Inc., says it normally orders raw materials six months in advance, but now is having trouble getting customers to decide what they need in three weeks.
In another example, WSJ says that one automaker canceled a $2 million parts order destined for China because of escalating trade tensions. “Other companies say they are grappling with higher costs being passed along by domestic suppliers,” it adds. “Small businesses can be more nimble than larger companies. But they also have smaller cash cushions, making it more difficult to respond to the new economic challenges by accelerating orders or moving production.”
Manufacturing Takes a Hit
According to Business Insider, the trade war has negatively impacted U.S. factory activity, which fell last month for the first time since January 2016. Citing the Institute for Supply Management’s Purchasing Manager’s Index, Business Insider says the measure receded to 49.1 last month (a reading below 50 typically indicates that growth in the manufacturing sector is weakening) as the U.S. and China both slapped fresh tariffs on billions of dollars’ worth of imports.
“The institute’s new-order measure dropped to a seven-year low, suggesting that tariffs are dampening demand for new products from U.S. producers,” Daniel Strauss writes. “That index fell to 47.2, down from 50.8 in July. It's the first time the gauge has dropped below 50 since December 2015.” The readings came two days after the U.S. and China imposed a new round of tariffs on billions of dollars’ worth of products in the latest escalation of the trade war.
More to Come
Looking ahead, electronics buyers should keep an eye on two new rounds of tariffs that are already in the works and set to go into effect later this year. According to The Hill, we could see the tariff rate on $250 billion of Chinese imports increase from 25% to 30% on Oct. 1st. Then, on December 15th, the plan is to add a 15% tariff to the $160 billion of imports on consumer goods that were delayed for holiday shoppers.
“If all those tariffs go into effect, nearly every product imported from China will face an import tax, with the notable exception of some chemicals and minerals,” Niv Elis writes. “The average tax rate on Chinese imports will have risen from roughly 3.1% before Trump’s presidency to 24.3%.”