TV Tariffs Won’t Correct China’s Unfair Trade Practices, Says Best Buy Executive

The “overwhelming majority” of TV panels sold in the U.S. are made in China, said Mohan. “There are no near-term alternative sources, meaning consumers will have no choice but to continue purchasing TVs made from Chinese panels,” he said. “Developing alternative sources would entail massive new investments that could take several years, if ever, to develop.” He said a 25 percent tariff on finished sets made in China “will have no effect -- directly or indirectly -- on Chinese policy and only result in a significant disruption to the U.S. economy, producing a result that runs counter to the stated process employed by the USTR in choosing products to which the tariff would apply.”

The retailer also worries that tariffs on TVs “will adversely affect Americans -- namely, U.S. consumers and businesses,” said Mohan. “Best Buy submits that imposing a tariff of 25 percent on goods that represent such a sizable portion of the total U.S. market would amount to what is effectively a significant new tax on
U.S. consumers and businesses.”

Another Best Buy fear is that the higher costs of TVs on which tariffs would be imposed “would fall primarily on the U.S. consumers who purchase smaller panel TVs from China -- televisions that are more accessible to American households with limited disposable income,” said Mohan. “In our view, this is inconsistent with the USTR’s stated intent to place tariffs on products that are not ‘likely to cause disruptions to the U.S. economy’ and U.S. businesses and consumers.”

Element Electronics General Counsel David Baer, who testified before Mohan at Tuesday’s hearing, emailed us Thursday to take issue with those who used their testimony to minimize Element’s standing in the TV space and thus tried to delegitimize its advocacy for imposing the 25 percent tariffs on finished TVs from China. Element, which bills itself as the only company assembling LCD TVs in the U.S. via its plant in Winnsboro, South Carolina, says it's unfair that it pays higher duties for the LCD panels it sources from China than the duties assessed for finished TVs imported from China and Mexico, and that the tariffs will help level that playing field.

Mohan at the hearing said Element shipped only a miniscule portion of the roughly 35 million TV sets sold in the U.S. last year. Element's volume also was small compared with the more than 18 million finished TVs shipped from China that are targeted for tariffs on the USTR’s product list, said Mohan. Best Buy doesn't carry Element TVs, but the brand has a big presence at Costco, Target and Walmart.

At the hearing, Baer was “disappointed, yet not surprised, to hear disparaging comments about Element by others in the industry,” he told us. “The information about Element quoted by others at the oral hearing was incorrect. As a private company, we do not disclose information about our revenue or capacity. However, I can assure you that our factory in South Carolina is nowhere near its capacity and the statistics others quoted at the hearing are materially inaccurate.”

NPD point-of-sale data “confirms our place in the market,” said Baer. “We have consistently been in the top 5 of unit market share in the USA. Our market share is far from a drop in the bucket.” Stephen Baker, NPD vice president-industry analysis, confirmed to us that Element increased its unit share at the retail point of sale to 7.4 percent in 2017 from 6.6 percent in 2016, enough to place it among the top five TV brands in both years (see 1804270040).

On remarks at the hearing by Jonathan King, TCL North America vice president-legal affairs, that TV “assembling is not manufacturing," and the idea that a domestic TV production industry could quickly emerge domestically in the aftermath of Chinese tariffs isn't feasible, Baer said TV assembly “is an important aspect of the manufacturing process.” The TV supply chain “is not as simple as some make it out to be,” said Baer. Attempts to reach Mohan and King for comment Thursday were unsuccessful.

In 2014, Element “boldly set out to reshore an industry that had been extinct from the US for decades,” said Baer. “This cannot be done overnight. Bringing TV assembly back to the US was a significant leap for a US industry that died decades ago -- nobody else was willing or able to do it. We continue to believe that if the punitive US trade laws are fixed, Element, along with other new US TV producers, can rebuild an entire industry that could employ thousands of US workers. We believe the 301 duties will spur a significant growth of US production of TVs, not just by Element, but by many other companies, which we welcome. This will be great for the economy.”

Element stands by its call for the USTR’s office to install measures to prevent Chinese TV producers from circumventing the tariffs by shifting production to other countries of origin, said Baer. “If the US implements tariff rules against China, it needs to be sure the tariffs are in fact effective,” he said. “The 301 duties are intended to help grow the American economy, not the economy of other countries through clever tariff evasion. Therefore, the US must protect against the circumvention of these duties. If Chinese producers want to move production to other countries as a result of the duties, they should move it to the US, not Thailand, Vietnam or Mexico. America. So, the rules must be implemented in a way that bring about the desired result.”

Should the USTR’s office decide to impose tariffs on finished TVs from China, it should consider implementing a “product exclusion process” that exempts U.S. companies to be sure that those “who are leading the way in innovation and technology are not inadvertently harmed by the tariffs," said Vizio in May 11 comments posted Thursday in docket USTR-2018-0005. The proposed tariffs “are meant to address China's policies and actions on forced technology transfers and ineffective protection of intellectual property rights,” said Vizio. The tariffs “should not punish U.S. companies that are most affected by China's policies,” it said.