On Monday night, the US Trade Representative (USTR) finalized a new round of tariffs on $200 billion in Chinese imports, and the impact on tech companies will be severe. Starting next week, affected goods will face a 10 percent tax as they enter the country, rising to 25 percent at the end of the year. The tariffs spare the most popular consumer products like phones and computers, but a wide range of electronics are listed, including printed circuit boards, power assemblies, and computer chips. Nearly every US company doing business in China will be affected in some way, but for smaller companies that are importing Chinese components, it could be catastrophic. The result is a new disadvantage for US assembly plants, left as collateral damage in the escalating trade war.
The final list of goods left off some of the most contested categories — most notably, the customs codes for fitness trackers and voice-activated assistants that had been challenged by Apple. On Good Morning America this morning, Apple CEO Tim Cook was sanguine about the incoming taxes. “I’m optimistic,” Cook said. “Trade is one of those things where it’s not a zero-sum game. I’m optimistic that the two countries will sort this out, and life will go on.”
Other companies are less reassured. Element Electronics, which makes Roku-integrated smart TVs, says the rules could spell disaster for its Winnsboro, South Carolina-based facility. The new tariffs don’t include TV imports from China, but imported parts like circuit boards and LCD screens will become 25 percent more expensive next year. For anyone putting TVs together in the United States, that’s a frightening thought.
Element’s general counsel David Baer said he first thought the tariff list must have been a mistake. “I can’t believe the US government is intentionally out to shut down our South Carolina facility,” Baer told a USTR committee in August. “The only TV company in the world that is the subject of these proposed 301 duties is the only company producing TVs in America. Think about that.”
US companies assembling computers from imported parts face the same problem. Dell, which runs assembly plants in Massachusetts and North Carolina, said the tariffs “could result in serious damage to Dell and its employees,” with the new costs either raising the price of products or coming out of the company’s bottom line. Competitors that keep their assembly in China would be unaffected.
This dynamic is familiar to economists, who see intermediate goods like circuit boards as fundamentally different from consumer goods like laptops. “It is well-known that tariffs on intermediate goods will harm producers of the final goods,” says Eric Bond, who studies international trade at Vanderbilt University. “Historically, protectionist countries have taken this into account by putting higher tariffs on producers of final goods to offset the impact of tariffs on intermediate products.” So far, the Trump tariffs have ignored that logic, exempting major products to focus on minerals, metals, and unassembled components.
The economic damage will be particularly severe for smaller companies. CyberPowerPC, a small LA company specializing in high-end custom computers, pleaded its case to the USTR earlier this month. “These tariffs will increase the cost of all of our products and we will no longer be able to stay competitive,” the company’s CEO wrote. “In our company’s 20-year history, the proposed Section 301 Tariff Action is the greatest threat to our company’s survivability to ever arise.”
John Samborski, CEO of an Illinois-based PC manufacturer focused on education and government contracts, put the tariffs in even harsher terms, saying simply: “I don’t recall the President campaigning on ‘Making China Great Again.’”
Other companies have raised concerns about more complex repercussions. The new tariffs could raise the price of telecommunications equipment, according to an Intel filing, slowing the deployment of 5G networks and degrading US mobile networks. Other tariffs on server components would make it more expensive to operate cloud services, raising expenses for internet companies and potentially opening the door for Chinese companies like Alibaba to compete with Google and Amazon.
In other cases, the chaos of the rollout has been enough to cause problems. Brilliant Home had worked on its smart home controller for three years, and it was blindsided by the Trump tariffs just a few weeks before its launch. It had planned for a $249 price tag, making it $80 cheaper than a base-level iPad. But the 25 percent tariff would have made that price impossible. The final product went on sale last week; the starter model is now priced at $299. With the import duties already more than the company’s profit margin, there was no choice but to pass the cost along to consumers.
Giants like Apple can appeal to change the tariffs, but for a company launching its first product, that simply isn’t an option. “Large companies have resources to sort of bear the brunt of the tariff for a while or lobby for exemptions,” Brilliant CEO Aaron Emigh says. “But startups don’t have a voice in this process.”
However companies weather this round of tariffs, there may be more to come. China has pledged to immediately retaliate with tariffs on US imports, which may spur further retaliation from the US. “In order to safeguard our legitimate rights and interests and the global free trade order,” the country’s commerce minister said in a statement, “China will have to take countermeasures.”
Additional reporting by Chaim Gartenberg