Chinese Tariffs Would Especially Harm Tech Startups, Say Two That Oppose Duties

Tech startups are among the many hundreds of innovators from various industries voicing opposition to a third proposed tranche of 25 percent Section 301 tariffs on Chinese imports (see 1808150002), comments in docket USTR-2016-0026 show. One such startup, Cao Gadgets, worries about the impact tariffs will have on its “family owned small business,” which develops wireless sensor tags for a variety of Internet of Things uses, commented owner Mike Cao. Four days of public hearings are to begin Aug. 20 on the proposed third tranche. Final comments in the docket are due Sept. 6.

Like most other small American businesses in the consumer IoT space, Cao Gadgets develops the “software/firmware portion of our products” entirely in the U.S., and buys integrated circuits and other electronic components from American producers like Intel, Microchip and ON Semiconductor, Cao said. His company then exports its goods to printed circuit board assembly (PCBA) contractors in China, he said. PCBA is a “labor intensive process,” and virtually no low-cost, high-volume PCBA contractors exist in the U.S., he said.

Cao wants the goods his company reimports from China under the Harmonized Tariff Schedule’s 8531.90.15, 8531.90.30 and 8534.00.00 subheadings removed from the proposed duties list, he said. Imposing 25 percent tariffs on those “articles” would be unfair, because more than 90 percent of their “value declared” resides in the price of the ICs and other electronics components exported from the U.S. to the Chinese PCBA contractor, he said.

Less than 10 percent of the goods' declared value “is actually paid to the contractor for the PCBA labor,” Cao said. Tariffs not only will hurt the “thousands of USA small businesses/start-up companies like us,” but also the large American chipmakers that export their products to PCBA factories in China, he said. That’s typically what the “low-cost, consumer electronics supply chain looks like for most USA businesses currently,” he said.

Jie Qi and Andrew Huang started Chibitronics, a “small manufacturer and distributor of educational electronics products” for schools and libraries, they commented. They are “extremely worried” about tariffs on electronic parts imported from China under HTS 8538.90.00 and 8543.90.00 because the additional “tariffs on electronic parts will deprive American children of access to technology education,” they said.

Learning how to “blink a light or code for a simple computer" is "the de-facto introduction to electronics used by American educators across the country,” Qi and Huang said. Chibitronics developed a unique “paper circuit” technology that enables learners to “craft these introductory circuits with the ease and simplicity of placing stickers on paper,” they said.

Production of the paper circuits relies on “processes and materials” available exclusively in China, Qi and Huang said. The price hikes that the tariffs will necessitate “will be felt most sharply by educators,” they said. “Enabling technology education is our company's core mission, so we have already given deep discounts to qualified US educators. Because of this, the increased tariffs will lead to a dollar-for-dollar price increase to most educators.” Most American public schools “run on fixed budgets -- especially the neediest ones,” they said. “The price increase will mean cancellation of programs or less hands-on experience for students.”