By now, I’m sure you have heard the news about the “trade war” going on between the United States and China. This has led to each country imposing a set of tariffs on each other’s goods.
What this has resulted in is essentially a new tax on the goods, but the bill to pay is not sent to the other country, but instead to the purchaser of the goods, who is the one that has to pay the tax. One such example would be Apple, as they have many of their goods built by a manufacturing company called Foxconn, which has a factory in China. The U.S. imposes tariffs on goods, based on their class code, and anything that comes into the country via customs has to have a declaration of what it is, the value and its class code.
If you are interested in learning more about ideas for AVL upgrades for houses of worship, check out the following session, "Keys to Upgrading Your AVL," slated for the WFX Conference & Expo this November in Orlando.
Under normal business, Apple would order, then pay for the goods from Foxconn. Then they ship the products to the various countries, that are then to be sold in retail stores. The new tariff that is starting next week, is 10 percent, and is laid out on a list of goods nearly 200 pages long.
The tariff, though, is only on track to increase. The next step, is that the tariff is slated to jump to 25 percent, starting January 1, 2019.
To put this in perspective – let’s say the new iPhone X sells for $1,000 before any of these new tariffs. I bet most people are thinking – does this mean the iPhone will now cost $1,100?
And then $1,250 this coming January?
But only if Apple decides to raise the price that much, and asks their customers to fully cover the cost of these new tariffs.
Where this gets interesting, is that the tariff (or tax) is not paid by China or Foxconn, but instead by Apple, who pays the tariff to the U.S. treasury, upon the item’s entry into the port. And the 10 percent is based on the manufacturer’s cost to Apple.
I have no idea how much Apple pays Foxconn, but let’s guess it to be $500 for each iPhone X.
In that situation, the tariff cost would add an additional $50 to the price now, and $125 in January. Apple could decide to forgo some amount of its profits on the iPhone, by not charging more to potential customers, or they could decide to make more profit on such sales after the first round of tariffs by charging $1,100, for example, or they could just “cover the cost” and charge $1,050, or any other number they feel suitable to not negatively impact sales.
What this means is that prices on products that will soon be impacted by these tariffs, will change here in the U.S., partially based on the added costs and based on the competitive landscape of the product. It can be a little like a game of “last man standing,” or a stare down, when it comes to prices changing, as none of the companies want to lose market share to a competitor.
As in any large issue like this, the U.S. government allowed for about a week of testimonials on how the proposed tariff would affect business – which led to many companies large and small to write in and appear in person to give a 5- or 10-minute testimonies.
There are many items that have been purposefully excluded from the current round of tariffs, which include things like smart watches, Bluetooth items, child car seats, highchairs and some other random things. When it comes to the AVL industry, we are largely going to be hit with the tax, on things like projectors, cameras, amplifiers, LED video panels, and a host of other things.
In other words – most of Apple’s products will not have any new tariff applied.
The one thing that is certain at the moment is uncertainty, but the muddy waters will eventually clear, and prices will change to reflect the increase in costs.
It would be best in my view, to make your buying decisions on large ticket items sooner than later, as a 10 percent added cost to the manufacturer is a lot less than the potential 25 percent increase, come January.
Realize that when you call your dealer or integrator to ask questions, that will make you one of many people asking the same things, and I predict that the AVL industry will have an extremely busy fourth quarter this year with product purchases. As a result, this will lead to constraints on delivery time, which in turn will lead to back orders and the possibility of items not making it to you in time before the higher tariff rate comes into effect. In other words, I anticipate there will likely be shortages of product, as demand will increase significantly.
See here for the official information about the implementation of tariffs on products in the coming months.
Here is the list of goods that are affected by the $200 billion tariffs (start on page 178 to see the products that affect us):