TV sets, for a story about new tariffs

One great thing about TVs is that typically they get better and cheaper every year. But industry analysts say that if the Trump administration's proposed 25 percent tariff on products and electronics components from China goes into effect, you may be paying more for your next 4K TV.

However, the tariffs are far from finalized. Many industry watchers and political analysts believe that the administration's proposal—and China's  response that imposes similar tariffs on 106 American-made goods ranging from cars to soybeans—is simply part of a negotiating process. (On Thursday, April 5, the United States threatened an additional $100 billion in tariffs after the announcement by China, and the Chinese Ministry of Commerce has responded in kind.)    

"Negotiations between the two countries are ongoing, and there is a chance that some sort of compromise will be reached before either country’s tariffs come into effect," says Chang Liu, China economist at Capital Economics, a London-based research firm.

Under the plan released by the U.S. Trade Representative, companies have until May 22 to voice any objections to the proposed tariffs, and the U.S. government then has at least 180 days to decide whether to go ahead, providing ample time for negotiations. That pushes any action back to November. For its part, China hasn’t set a time frame for its threatened countermeasures.

But even if the U.S. tariffs do go into effect without big changes, analysts say it's too soon to predict how much more consumers will have to pay.

The Biggest Category: TVs

Most of the companies and analysts we talked to this week were still poring over the 58-page document outlining the goods and components that would be subject to the 25 percent hike. The document is confusing, even to industry insiders, laden with hundreds of seemingly outdated products, including VCRs, cathode-ray tube (CRT) TVs, and even black-and-white televisions.

According to experts we consulted, the reason is that the list is based on the Office of the United States Trade Representative's long-standing classification system for imported products.

But modern-day televisions are also on the list, and they appear to be one of the main targets of the administration's proposal. Of the 1,333 items listed, televisions and TV components account for $3.9 billion in sales, according to calculations by Euijin Jung, research analyst at the Peterson Institute for International Economics, a Washington, D.C.-based think tank.

Those numbers worry the Consumer Technology Association (CTA), a trade and lobbying organization that represents consumer electronics manufacturers, which claims that the tariffs could jeopardize more than 2 million American jobs, and could cost the U.S. economy $332 billion over the next 10 years.

A new study commissioned by the CTA and the National Retail Federation found that the proposed tariffs would increase prices on TVs from China by 23 percent and prices for all TVs by four percent. After the tariffs are applied, a TV made in China that costs $250 today would cost $308 and one that costs $500 would cost $615. 

None of the six major TV brands we contacted would comment on the tariffs. But one executive, who asked not to be identified, said that the document's "lack of clarity" meant it would take a few days for companies to assess the potential impact on their business.

How TV Makers Could Respond

Some TV companies may look to find alternative sources if the tariffs take effect, says Jung, the PIEE research analyst.

"The United States imports [TV] components from China, Mexico, Thailand, Vietnam and Korea," Jung says. If Chinese products are hit by a 25 percent tariff, she says, TV brands may look to shift more of that work to other countries. However, moving operations "would also increase costs as they have to reallocate resources."

The most obvious option for TV makers might be to shift more production to Mexico, says Paul Gagnon, executive director of research and analysis at market research firm IHS Markit. That country already accounts for about 40 percent of American TV imports, compared with about 50 percent from China. TV brands including LG, Hisense, Samsung, and TCL currently make TVs in Mexico—and ship them duty-free to the United States under NAFTA rules.

Manufacturers could also build production plants in the United States. Foxconn, for example, is set to open a TV assembly facility in Wisconsin this year. "But these shifts won't happen overnight," says Gagnon.

And the economic incentives to do so are mixed. Jack Cutts, the CTA's director of business intelligence and research, points out that the proposed tariffs don't apply just to finished TVs, but also to many of the sub-assemblies and printed circuit boards that go into TVs. "Unfortunately, if enacted, these tariffs would apply at virtually every level" of the manufacturing process, he says.

And that could make it more expensive for companies to move TV manufacturing or assembly operations to the United States.

"This is the arithmetic everyone is doing right now," Gagnon says. "You not only have to factor in higher component costs, but the fact that labor is significantly higher in the U.S. than overseas."

All these factors mean there's no consensus about what a 25 percent tariff would do to the prices consumers pay for a new TV in coming years.

The retail price of a TV is driven partly by U.S. marketing, warehousing, and other operations, along with retail margins, says Liu, the China economist at Capital Economics, and those costs don't move in lock-step with import costs. Additionally, Chinese companies might cut their prices to offset the tariffs, as they've done in the past.

"Taking these factors into account, we think a 25 percent tariff would lead to a much smaller increase in U.S. retail prices of Chinese-made products," he says.

Gagnon isn't so sure. "Given the low margins on TVs, the majority of those increases would have to be passed along to the consumer."

Whatever the increase, though, shoppers may be stuck.

"After all, the choice for a U.S. consumer would not be between a more expensive Chinese product and a cheaper U.S.—or non-China—made one," says Liu. "It would be between buying a more expensive Chinese product and not buying one at all."

 

Editor's Note: This article has been updated to note that the United States and China have traded threats of further tariffs, and to include a new study from the CTA and the National Retail Federation.