Last week, President Trump enacted Level 3 tariffs on goods made in China, to the tune of $200 billion dollars. Here is the list of what will be charged in the new tariffs.
The list includes a huge amount of food items as well as tariffs on hundreds of materials like Zinc Oxide, Nickel Ore, Titanium ores, silver ores, some types of silicon and other materials that go into all types of toys and tech products.
There has been much talk about how this round of tariffs would impact companies like Apple, Dell, HP, Lenovo and other major tech companies who create millions of smartphones, laptop, printers, etc.
While some of the components that are used in these tech products could impact their cost, I am told by ODMs that for the most part, this round of tariffs will have minimal impact on these products. One exception is servers. There are some things on this list that could add additional cost to servers created in China, but at the moment, it is still too hard to determine how much this new round of tariffs will truly impact server costs. As you can imagine, figuring out additional material costs due to tariffs is a painstaking process, and it may be a week or so before we get a real idea of how much these tariffs will add to the cost of some toys and tech products.
Sometime on Monday, May 13, 2019, the White House will release a list with what would be level 4 tariffs which would amount to another $325 billion dollars of products. Although it is not clear as of this writing what will be in these new tariffs, suppliers I talk to in Asia tell me that they have been warned that a level 4 round most likely will include some finished goods too, including laptops, tablets, smartphones, and printers.
As you can imagine, this has the tech vendors who create these types of products, watching very closely. Some economists point out that the 4th level of tariffs, including things like finished goods tech products, is more of a bargaining ploy by the US to try and get concessions from China. On the other hand, Chinese delegates left Washington last Friday night without a deal, and Trump and the team has given them another four weeks to resolve this tariff stalemate. Lobbyists for the tech vendors have been warning Trump and the White House that tariffs on tech products that have become fundamental to our daily lives would have a dramatic impact on the companies creating these products, as well as the economy.
A Bloomberg article posted after the Level 3 round of tariffs went live, stated the following:
“This week’s tariff move is likely to have significant short-term consequences for retailers and other U.S. businesses reliant on imports from China. But extending it to all trade would increase the economic and political stakes even further for Trump and American companies.
Such a step would see price increases on smartphones, laptops and other consumer goods — the kind that Trump’s advisers have been eager to avoid, out of concern for the fallout. It would likely provoke further retaliation, and some economists are predicting it could even tip the U.S. economy into recession just as Trump faces re-election in 2020.
This 4th round of tariffs is what Tim Cook, Micheal Dell, and other tech leaders have been deeply worried about and in Tim Cook’s case, he has personally lobbied against them. The one thing in favor of Apple, Dell, HP, and other local US companies is that Trump sees them as showcase companies and this is one of the reasons why they have avoided any real impacts from tariffs so far.
But Trump and the White House are running out of things to charge tariffs against, and it is most likely that should a China deal not go forward, even after level 3 tariffs have been levied, it may be impossible for the big tech giants to avoid being caught in this next round of tariffs.
Another thing that could impact Apple other tech companies is if China decides to retaliate by placing tariffs on US-based products coming into China. As the WSJ points out, Apple’s China business would come under this type of tariff retaliation, and it could impact their China business, that is already struggling.
Whether we go to a level 4 tariff round or not, the big tech companies already see the writing on the wall when it comes to China. As I stated in a recent Think.Tank column China has a 100-year plan in which they want to have more control of their destiny and that their own manufacturing facilities could be turned inward.
So, many of the big tech companies are now starting to look outside of China to countries like Viet Nam, Malaysia, Thailand, Cambodia, India, and Mexico to invest in new manufacturing facilities in these countries, to offset any potential issues with Chinese manufacturing capabilities in the future. Indeed, at least one major OEM will have moved a significant part of manufacturing or assembly of notebooks out of China by late this year.
Of course, there will be a lot of political jockeying in the next four weeks and these companies, along with most of America, are hoping for some resolution that keeps level 4 tariffs from ever seeing the light of the day.
But if the US and China cannot come to a resolution soon and level 4 tariffs do kick in yet this year, you can probably expect to pay significantly more for laptops, smartphones, and printers as early as Q4.