Low-End Electronics Suppliers Say They’re Especially Vulnerable to Tariffs on China

Marketers of low-end consumer electronics (CE) products will be especially vulnerable if the Trump administration imposes a third tranche of 25 percent Section 301 tariffs on Chinese imports, companies said in comments in docket USTR-2018-0026. Both said their businesses are too profit-poor to absorb higher customs duties, and they worry about the pass-along impact of higher pricing.

Car audio supplier Dual Electronics wants five line items removed from the proposed third tranche because tariffs “will wreak havoc on our aftermarket industry and have an as yet undetermined impact on our company,” commented CEO Jim Braun. Dual operates on “the value end of the market, where we supply hundreds of thousands of receivers per year,” most priced under $100 retail, and targeted to “people with older cars to not only have an affordable radio, but also basic connectivity features like Bluetooth,” Braun said.

Few, if any, companies in the low-end aftermarket car audio space can absorb a 25 percent cost increase because they operate on low margins, Braun said. Their only alternative will be to pass on the higher costs to retailers, who ultimately will pass them on to consumers, he said. “Demand will surely drop for our industry,” he said. “Supply will be cut back as a result. Jobs will be lost as we, and others, adapt to a smaller business. The amount is TBD.”

Having to pay the higher customs duties when the product arrives in the U.S. "will have a large disruptive impact on cash flow management for many, which will yield further cutbacks," Braun said. "One can anticipate many small and mid-size companies not surviving the blows to their businesses. The very largest multi-national corporations with the global size and diversity to weather the storm in the U.S. will be left standing. In essence, the administration is then picking the winners and losers. As the dust settles, the largest survive, and small business takes the hit."

Another low-end vendor, Digital Products International, worries tariffs on the CE goods it sources from China will be a “significant detriment to our employees” and the “average American worker” who wants to buy DPI products, CEO William Fetter commented. DPI markets audiovisual products through “all the major retailers and targeting more of the opening price points,” Fetter said.

Tariffs will “take away the benefits of the tax cuts as well as the affordability for the lower income individuals to enjoy these type of products that have improved the standard of living in the USA,” Fetter said. The duties won’t bring CE manufacturing back to the U.S. but instead will shift production from China to Vietnam or Mexico, he said. “This will not add a single USA job but is only jeopardizing those almost 100 jobs at our company. Slapping more trade taxes on products from China doesn't support hardworking Americans who want more choices at lower prices. Foreign governments don't pay these tariffs, American citizens do.”