President Trump’s threatened 5% tariff on all imported goods from Mexico beginning June 10th could have a significant impact on the U.S. television business if carried out.
The president announced the tariffs in a Twitter statement Thursday, saying the measure will be left in place until Mexico takes action to halt the flow of undocumented immigrants coming across the border.
The tariffs would essentially place an additional “tax” on all goods imported into the country from Mexico, and would place a double whammy on the television category, which is already facing a 25% tariff on units imported from China.
Further, Trump said the tariff rate on Mexican goods will “gradually increase” up to a maximum of 25% until his immigration demands are met. In an official statement, Trump said that tariffs would be raised to 10% on July 1st and 5% for three months thereafter. existing China tariffs thus far have impacted mostly low-margined smaller screen television sets (mostly under 50 inch models sold by companies like TCL, Hisense and Vizio), which manufacturers and retailers began storing up late last year as a hedge against the tariffs materializing. But the Mexican tariffs are seemingly coming out of the blue and could place new taxes on many of the larger-screen size (50-inches and up) and better-performing models sold in the United States.
According to IHS Markit quoteing International Trade Commission (ITC) data, in 2018, 40% of TV units imported to the United States came from Mexico, and that fell to 38% in first quarter of 2019. On a revenue basis, 62% of the value of TVs imported to the United States come from Mexico, which dipped to 58% in Q1’19. IHS director of TV market analysis Paul Gagnon, said “the higher value compared with units reflect that mostly larger screen sizes come from Mexico, as well as more premium priced TV brands predominantly import products from Mexico, especially Korean and Japanese brands.”
Ironically, some of the China-based TV makers had begun shifting television assembly to Mexico as a way to skirt the tariffs on China.
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If left in place long term, the cumulative 25% “taxes” eventually would have to be passed on to consumers and could slow the rate of customary price decreases into the critical Holiday (Black Friday) selling season or even raise prices on goods. That is something that rarely happens in the consumer electronics business.
Not surprisingly, the move drew a statement of outrage Friday from Consumer Technology Association (CTA) president Gary Shaprio, who represents the largest tech lobbying association in the country.
Shapiro said Trump’s new tariffs on Mexico are “potentially devastating” to the technology sector.
“This is a short-sighted, short-tempered reaction that doesn’t recognize a basic economic fact – tariffs are taxes,” Shapiro said in a statement. “This administration must understand using tariffs to penalize other countries – whether that’s China as a negotiating tactic or our close ally Canada for allegedly being a ‘national security threat’ – means American families, workers and companies pay the price.”
Shapiro commended the president’s additional action Thursday in signaling Congress that a new North American Free Trade Agreement (NFTA) called United States Mexico Canada Agreement (USMCA) is coming soon, but Trump then immediately “backslid by slapping tariffs on Mexico, a valuable neighbor,” he said.
“Mexico is not only one of our top trading partners, it’s the number one export market for American consumer technology sector products – $41 billion worth of U.S. consumer tech sector goods in 2017, almost double that of our next highest export market. If Mexico reciprocates with tariffs of its own, our country’s employers and workers will end up paying twice over for the administration’s misguided trade policies,” Shapiro said.
Shapiro added, retaliatory tariffs could seriously damage the longstanding trade partnership between the two countries; “This is potentially devastating to American small businesses and all the people they employ.”
The CTA has been fighting Trump’s tariff strategies for months, and has cautioned that if left unchecked the defacto “taxes” could force tech companies to raise prices on products. That would likely impact companies’ bottom lines.
According to reported industry estimates, the tariffs already in place have cost the U.S. tech industry about $1 billion more per month since October.
Commenting on the potential impact on U.S. television sales, Stephen Baker, VP of industry analysis for the NPD Group, said: “Our view is that until tariffs hit onerous levels (probably 15-20%) most brands and retailers will find ways to mitigate the impact to sales through a combination of cost reductions, production movements, rethinking end user pricing and promotions and marketing shifts to move product sales to categories less impacted.”
He continued: “A tariff from Mexico on TVs would likely throw a crimp in most TV brands’ planning since it is generally assumed today that a substantial amount of larger screen TVs are final assembled in Mexico (due to shipping and cube concerns) and that Mexico assembly of TVs was an opportunity to offset some challenges caused by tariff increases on Chinese imports. That said, we don’t have any idea how soon tariffs would exceed 5% and I don’t believe that 5% cost increases would necessarily show up in an obvious way in the end user price.”
IHS Market’s Gagnon told HD Guru: “At 5%, I expect brands and retailers will mostly try to absorb the cost and not shift to much higher forms of shipment, such as air. Also, importing by ship implies that the goods will come from Asia factories, and there is a looming tariff on TVs from China. Another option is sourcing from South East Asia, but those supply chains are not fully up and running yet, and not as practical for larger screen sizes anyway. I also doubt that this tariff announcement will result in any significant change in investment strategy right away, since these things can be pretty uncertain, and investment costs a lot.”
Ironically, the new tariff threat came as the Trump administration started pressuring Congress to pass the USMCA. That agreement was ironed out last October but is awaiting ratification.
The White House said that agreement is intended to “create more balanced, reciprocal trade that supports high-paying jobs for Americans and grows the North American economy.”
Agreement highlights include:
•Creating a more level playing field for American workers, including improved rules of origin for automobiles, trucks, other products, and disciplines on currency manipulation.
•Benefiting American farmers, ranchers, and agribusinesses by modernizing and strengthening food and agriculture trade in North America.
•Supporting a 21st Century economy through new protections for U.S. intellectual property, and ensuring opportunities for trade in U.S. services.
•New chapters covering Digital Trade, Anticorruption, and Good Regulatory Practices, as well as a chapter devoted to ensuring that Small and Medium Sized Enterprises benefit from the Agreement.
By Greg Tarr
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