Sonos Says It, Not China, Would Bear ‘Disproportionate Burden’ From Tariffs
Imposing 25 percent Trade Act Section 301 tariffs on wireless home audio systems imported from China “would cause disproportionate and severe economic harm to U.S. interests, while failing to address” China’s allegedly unfair trade practices. So commented Sonos in docket USTR-2018-0026, adding its name to the dozens of entities voicing opposition to the proposed duties on connected devices and networking products imported to the U.S. under the 8517.62.00 tariff line, including CTA, which said it fears a $1.8 billion annual hit to the U.S. economy (see 1808170014).
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The products Sonos imports from China are contract-manufactured exclusively for the company, “based on our designs and to our quality and performance standards,” using R&D that “all occurs” in the U.S., said the supplier. Sonos also sources supply chain management, shipping, logistics and other services from Chinese companies, and has done so without difficulty, it said.
Sonos “experienced” none of the IP-theft issues raised in the Office of U.S. Trade Representative’s Section 301 investigative report released March 22, nor has it been “forced into a joint venture” as a condition to manufacture in China, it said. Sonos has “retained close control” over its IP “without interference from the Chinese government,” it said. “Where we have chosen to license IP to Chinese companies, we have done so under market-based contracts.”
That Sonos hasn’t experienced the “kinds of problems” identified in the Section 301 report “is not surprising,” said the company. Wireless home audio systems don't represent “industrially significant technologies and do not have a significant nexus” under the Chinese industrial policies that the Trump administration is targeting to change by imposing tariffs, it said.
Sonos notes that the administration said it removed TVs and smartphones from the first tranche of tariffs that took effect July 6 because those are goods that American consumers commonly buy (see 1806150030), said the company. “Sonos’ products share many characteristics with these other products and should be removed from the current list for the same reasons,” it said. “If an additional duty is imposed on Sonos’ smart speakers, production of our products in China will continue while Sonos and/or our customers -- not China -- will bear a disproportionate burden from any additional tariff imposed on our products.”
Imposing tariffs on the networking products imported to the U.S. from China under the same 8517.62.00 customs classification as Sonos smart speakers “would have a detrimental impact on U.S. interests,” commented Cisco, Dell, Hewlett Packard Enterprise and Juniper. “The duties would effectively create a tax on public sector and business entities,” said the companies. “Given the enormous volume of potentially impacted trade,” the tariffs would affect more than $23 billion in total imports and “create potential duty liability” of up to $5.7 billion a year for U.S. consumers, they said. “Prices for networking products and accessories would almost certainly increase.”
The “race” is already on “to lead the world in 5G," with the first shipments of 5G devices expected in 2019, said the tech companies. The U.S. “currently lags behind China in 5G readiness,” they said. U.S. deployment of a 5G “infrastructure” will be “key” to America’s “early and successful rollout of 5G technology,” yet that deployment “will depend on “the very networking products the proposed additional duties would target,” they said. Cloud computing “is another strategic priority that depends heavily on the networking products that are potentially subject to the additional duties,” they said.
The cellphone chargers, batteries and accessories that Xentris Wireless sources from China under the 8504.40.85, 8504.40.95, 8506.80.00 and 8544.42.20 classifications account for 80 percent of the company’s profits and revenue, commented the supplier. Tariffs on those products, as proposed, “would not only harm Xentris,” but also its customers, “mainly American wireless carriers, retailers, and dealer agents, and ultimately the American consumers who will not be able to get the wireless accessories they want,” said the company. “Anyone who has had their cell phone or tablet run out of power knows how important” those wireless accessories are, it said.
Virtually none of the goods that Xentris imports from China “can be sourced from anywhere other than China,” said the company. Though a “handful” of alternative suppliers exists in Vietnam, Taiwan, the Philippines and South Korea, “they either lack the product quality or technology” Xentris needs, or the “sufficient breadth or variety of products to cover the many different variations of products that we carry,” it said.
CTA, the Information Technology Industry Council and the National Retail Federation are among the 85 trade associations from various industries banding together to form Americans for Free Trade in a “major campaign against tariffs,” said the group Wednesday. Other members include the Computer & Communications Industry Association, CompTIA, the Internet Association and Telecommunications Industry Association. “Tariffs Hurt the Heartland” will be the theme of the campaign, which will “tell the stories of American families, farmers, workers and businesses who are being hurt by the trade war,” it said.
The campaign will kick off next week with events in four states to publicize “how tariffs are affecting families, farmers, factory workers and businesses of all sizes,” said the group. It also plans a “rapid response ‘war room’ that will fact check and respond to tariff announcements,” and will publish “op-eds, blogs and statements from Americans bearing the brunt of tariffs,” it said. “Almost every economist agrees that tariffs are bad policy,” said CTA President Gary Shapiro in a statement. “The proposed failing tariffs are questionably legal and are holding back small- and medium-sized businesses looking to grow and compete."