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China Tariffs Will Raise Prices, Cut Consumer Demand

In late 1985, I ran to a hastily-called morning press conference in midtown Manhattan hosted by Jack Welch, then-chairman and CEO of GE. The subject was GE’s acquisition of RCA, which had been announced the previous evening. At that time both GE and RCA were still in the consumer electronics business, albeit with smaller and far less profitable market shares than 20 years before.

At that time, Japanese vendors dominated the market and many in the U.S. lamented that the country’s CE manufacturing base was slipping away. VCRs, a major star in the CE market in the 1980s and invented in the U.S., were only being manufactured in Japan and other Far East countries. Both GE and RCA sourced their VCRs from Japanese suppliers and slapped their logos on them. I asked Welch, “Does this merger mean that VCR manufacturing will return to the U.S.?”

“No,” he quickly answered. “That ship sailed a long time ago.”

His answer came to mind when I heard about the Trump Administration’s proposed tariffs on electronics from China. Tariffs are designed to protect domestic industries from cheaper goods being imported into a country, saving profitability and manufacturing jobs.

In the case of the category that may be impacted the most by this proposal – TVs – the fact is the U.S. doesn’t manufacture them anymore. A small percentage of the millions of TVs sold here annually are assembled in the country. China and a handful of other countries make TVs.

Source: U.S. International Trade Commission

The net effect will be higher prices – and possibly lower consumer demand – in the U.S. The recent study commissioned by CTA and the National Retail Federation (NRF) says that the tariffs could increase the price Americans pay for TVs, costing consumers an estimated $711 million over the next year. The study also said prices of all TVs from China would increase by 23 percent and increase prices for all TVs by four percent.

The subject came up in San Antonio at the recent ProSource meeting – the gathering place for the specialty AV-buying group focusing on TVs. Dave Workman, president and CEO of ProSource, commented that tariffs are “the wild card that none of us can predict.” But he noted, “The one exception is tariffs where we could see massive price increases coming about.”

Workman added, “Other than TVs, where would [the impact of tariffs] fall? So much of electronics are manufactured in China, from chipsets on up” to components for a wide swath of products. “It will affect virtually everything we are selling. China is the number one point of manufacturing for all we sell, so if they target CE it would have a significant effect.”

Jerry Satoren, executive director of the NATM Buying Group, which consists of a dozen regional electronics and appliance chains, commented on his members’ experience with tariffs on major appliances. “While the subject of whether or when U.S. tariffs will result in the desired outcomes for American manufacturing is debatable, there is one immediate outcome so far that is not. U.S. consumers are paying more for washers and dryers than they were pre-tariffs, no matter where they are manufactured.”

Source: U.S. International Trade Commission

He sees the same fate for electronics under the proposed China tariffs. “The question is will the near-term inflationary harm to the American consumer be fully mitigated by the potential longer-term benefit to the American worker and manufacturer?” Satoren said. “Within the CE and appliance industries, the most concerning question is how demand will be impacted particularly when it comes to discretionary or aspirational purchases. Will the consumer pay a bit more or will the dollars be spent elsewhere?”

All are legitimate questions.

As Gary Shapiro, CEO and president of CTA, said, “These proposed tariffs are bad for the economy, businesses and American consumers. For TVs, just one of the 1,300 products on the administration's list, American pocketbooks will suffer. Now that China has expressed some willingness to open its market and strengthen protection of intellectual property, the Trump administration should immediately initiate negotiations.”

Steve Smith