US Would Take $2.4B Hit From Tariffs on Connected Devices, Components, Says CTA Study
The U.S. economy will take a $2.4 billion annual hit in reduced consumer spending and other damage if the Trump administration imposes 25 percent tariffs on connected devices and printed circuit assembles as part of its threatened third tranche of Trade Act Section 301 duties against Chinese imports, said a CTA impact study Friday. An earlier study that CTA released with the National Retail Federation, well before the first two tranches of tariffs were imposed, said duties on $50 billion worth of Chinese imports, coupled with Chinese retaliation, would reduce U.S. GDP by nearly $3 billion and destroy 134,000 American jobs (see 1805010024).
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Tariffs of 25 percent on IoT-critical connected devices imported to the U.S. from China under the Harmonized Tariff Schedule’s 8517.62.00 subheading would cost the U.S. economy $1.8 billion a year from the impact of higher prices reducing “consumption,” said the new CTA study. “This single tariff line captures products needed by data centers to make the internet work, networking equipment that most businesses need to connect to the internet and operate office networks, as well as products that consumers need to access the web and enjoy its content,” including smart speakers and Bluetooth headphones and earbuds, it said. CTA earlier warned tariffs on HTS 8517.62.00 goods could result in “pass-down” cost increases “everywhere” along the IoT supply chain, and that was when proposed duties of only 10 percent were on the table (see 1807300002).
Without tariffs, CTA forecasts the hot smart speakers category will grow to become a $3.8 business in 2019 factory sales, based on unit shipments of 44.4 million. The association estimates 25 percent tariffs will reduce shipments by 5.3 million units and cost the industry $248 million in lost factory volume from the reduced purchasing power that would result from cost increases. Bluetooth earbuds, which CTA forecasts will be a $1.4 billion business in 2019 based on 14.2 million in factory unit shipments, would take a $588 million revenue hit if 25 percent tariffs are imposed, it said. Unit shipments would be reduced by 1.7 million.
When the U.S. government “begins to charge its own companies and people with more taxes in the form of tariffs, we have put in jeopardy not just the American Dream of many small and mid-size businesses, but you put in jeopardy the people that work for them too," said JLab Audio CEO Win Cramer in CTA's release. “Pre-tariffs,” said Cramer, JLab was planning “to scale up with new hires and programs,” but “put all of that on hold as we need to see how everything shakes out." Cramer is warning of JLab layoffs if tariffs on the Bluetooth headphones and earbuds it sources from China under HTS 8517.62.00 go through (see 1807310050).
If "implemented as proposed," tariffs on Audio-Technica's Bluetooth headphones and wireless mic systems "will have a significant negative impact on our business," commented Vice President-Operations Richard Sprungle Friday. “Although we have loyal customers, there is significant competition in our markets and the price to value relationship is often considered when our customers make their purchase selections,” he said. “The tariff increase as currently recommended will unfortunately have to be passed along to the US consumer.”
Since Audio-Technica sources products to its exacting “design and specifications” from various countries, including China, “we do not have alternative options available to us,” said Sprungle. “A certain segment of our product line is very cost sensitive and can only remain competitive through the lowest cost manufacturing option currently found in China. The cost increase proposed with the new tariff is difficult to absorb and will likely result in a reduction in sales and market share, and may result in potential negative employment implications.”
Wilson Electronics was burned in the first two tranches of tariffs when the duties it opposed were implemented on the RF components and semiconductors it imports from China to manufacture cellphone signal boosters in Utah, commented the company Friday. Now, Wilson supports imposing 25 percent tariffs in the third tranche on finished boosters imported from China under the same HTS 8517.62.00 classification as connected devices because Chinese competitors use “extremely aggressive pricing tactics to undercut Wilson’s sales,” it said. “Wilson estimates that these aggressive tactics are taking away tens of millions of dollars of sales from Wilson each year.”
The CTA study estimates 25 percent tariffs on printed circuit assemblies imported from China under HTS 8473.30.11 would hit the U.S. economy to the tune of $612.8 million annually. American manufacturers of products containing printed circuit assemblies will buy 12 percent fewer such components per year if 25 percent tariffs are imposed, said the study. It forecasts production will shift to other countries of origin, including Malaysia, Mexico, Taiwan and Thailand, and while prices of Chinese printed circuit assemblies will jump, so, too, will components sourced from “alternative” markets.
CTA President Gary Shapiro thinks U.S. trade policy “needs to steer clear of tariffs that act like taxes on American manufacturers and consumers,” he said Friday. Tariffs will bring "the unintended consequence" of forcing Americans to "pay more for all the devices they use every day to access the internet,” he said.
The Coalition for a Prosperous America disagrees tariffs are a bad thing, and stands firmly behind the administration’s plan to “consider” raising the third tranche of duties to 25 percent from 10 percent (see 1808010018), commented the conservative think tank Thursday in docket USTR-2018-0026. With roughly three weeks still to go before final comments are due Sept. 6, the number of comments posted in the docket surpassed 1,300 Friday, the vast majority opposed to tariffs.
Increasing the tariff rate to 25 percent is “necessary to bring further pressure on China to halt its wrongful practices,” said the coalition, noting the Chinese only retaliated to the tariffs and didn’t overhaul their allegedly unfair trade behavior as the administration intended. The coalition also supports adding to the tariffs list computer software imported from China under HTS 8524.99.40 “because that sector is a key part of China’s commercial espionage and industrial strategy,” it said. BSA|The Software Alliance didn’t comment Friday.
Six days of public hearings begin Monday on the third tranche of proposed tariffs, said a schedule of witnesses released Friday at the Office of the U.S Trade Representative. The agency extended the hearings by two days from the original schedule to accommodate 360 witnesses who will give oral testimony in five-minute time slots, the schedule shows.
CTA is scheduled to testify Tuesday on a panel that also includes Dell Technologies and Element Electronics, the schedule shows. CTA and Element have different agendas at the hearings, CTA to fight tariffs on the products it identified in Friday's impact report among dozens of other HTS classifications, Element to defeat two categories of LCD panels it imports from China to assemble TVs in Winnsboro, South Carolina (see 1808080032). Another tech panel that includes Jlab Audio, Universal Electronics, Logitech and Fitbit also is scheduled to testify Tuesday, while NRF is on a panel that's scheduled to testify Thursday, it shows. GlobiTech, LG Electronics the Semiconductor Industry Association, Alpine USA and Micro Electronics are scheduled to appear together on another oanel Friday, it shows.