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Understanding Trump’s Tariffs

The trade war with China is charging forward and the implications on the U.S. could linger into the future. On September 24, the U.S. began collecting 10 percent tariffs on $200 billion in Chinese imports – this tariff will shift to 25 percent if things are not resolved by January.  On top of that, the U.S. is collecting tariffs on washing machines, steel and aluminum. Combined all these tariffs will cost the economy $30.4 billion and eliminate nearly 100,000 jobs according to the Tax Foundation. While progress was made at the G-20 Summit as Preisdent Trump and Chinese President Xi Jingping decided not to raise tariffs on Jan. 1, the existing ones still spell disaster and could be brought up again in March.  

How Does this Affect the Tech Industry?

In the latest round of tariffs – $200 billion list – the Trump Administration spared $10.5 billion worth of connected devices imported from China, such as fitness activity trackers, smart speakers, smartwatches, wireless earbuds and wireless headphones. While this was a small victory for many in the tech industry, others weren’t as lucky to find  their products taken off the lists. By exempting these products, the Trump Administration may feel it has helped certain Americans. But all tariffs are taxes and they create trade wars. On the list remain $11.5 billion worth of networking goods, including modems switches, routers and $11.6 billion worth in printed circuit assemblies (PCA), which accounts for 68 percent of all U.S. PCA import.

As an unintended consequence of a tariff on PCA, American manufacturers of products that rely on imported Chinese PCAs will cut orders some six to 12 percent from suppliers because the cost will rise by nine to 23 percent. These costs ultimately will be passed on to American consumers and could increase prices on electronics by up to six percent. More, tariffs on PCA will cost the U.S. economy anywhere between $110 million to $613 million annually, for the ten percent and 25 percent tariffs respectively.

What Impact will this have on Businesses?

Tariffs will cost the U.S. money, jobs and our innovative spirit. During the United States Trade Representative hearing in August, this is what CTA member companies said.

Aaron Emigh, Co-founder and CEO of Brilliant, a Californian company that created a smart home control device: “It would cost approximately a million dollars and take many months to relocate manufacturing outside of China. These costs and timelines are not practical for Brilliant, as a small startup company with modest resources. Essentially, the proposed tariffs amount to a punitive tax on selling US technology, manufactured by a US company, to the domestic market.”

Mark Karnes, vice president, strategic planning and business development of Illinois’ Cedar Electronics, maker of aftermarket products such as CB radios, jump starters and dashcams: said, “The products that are impacted at the 25 percent tariff level have a dramatic effect on 60 percent of our company’s annual revenue. The dramatic increases in our product costs are making us less competitive with our foreign-based competition and the substantial loss of income from our main product categories of our business will force us to cut jobs in the U.S immediately.” China tariffs directly impact the livelihood of U.S. small businesses.

What is at Stake?

At stake is 5G and cloud computing.

Taxing network equipment and other vital components used in 5G technology will raise the cost of U.S networking infrastructure by hundreds of millions of dollars and reduce the incentives to improve it. Rolling out the next generation of wireless networks, which runs 100 times faster than the current 4G, requires fewer obstacles, not more. Otherwise, the U.S. will fall behind China.

Also, the networking equipment, like routers, in data centers will cost more. And the services cost will rise on the internet service providers (ISPs) that access those data centers. Additionally, the ISPs’ costs would rise between 10 and 25 percent on each product, such as the modems they import. Those costs and fees could pass on to someone else in the supply chain until they reach the consumer.

As a result, American consumers will face an internet of things tax. The first will be on the networking products they buy at retail stores or online, and the second will be in the form of increased costs associated with accessing the internet and tapping into the cloud. A 25 percent tax could slow U.S. output by $332 billion over the next ten years.

These cost increases will make it difficult for the U.S. to lead in 5G innovation, something President Trump has been adamant to do. And without the processing power needed to make 5G applicable in artificial intelligence, self-driving vehicles, smart city infrastructure and increased rural connectivity, the Trump Administration is making it harder to achieve any technological advancement.

Sage Chandler