‘Irony’ of List 4 Tariffs Is They Won’t Bring Back US Factory Jobs, Former CTA Chairman Says

Specialty speaker brand SVS Sound is “very serious” about “investigating” the sourcing of finished products from Thailand or the Czech Republic if the List 4 Section 301 tariffs take effect on Chinese imports, but doesn’t yet know of the financial ramifications, CEO Gary Yacoubian said in a June 20 interview. The proposed List 4 tariffs would be “devastating” to SVS because they would affect 100 percent of its product line, Yacoubian commented in docket USTR-2019-0004. Yacoubian previously served as chairman of the Consumer Technology Association, when it was named the Consumer Electronics Association.

The “irony” of the tariffs threat is that “it’s not going to bring American manufacturing jobs” back home, Yacoubian told Consumer Electronics Daily, a sister publication to International Trade Today. “All it might do is move some manufacturing jobs out of China into places like Vietnam and Thailand, Eastern Europe. Many of the Chinese factories that we deal with are not Chinese companies. Foxconn is a very-high-profile Chinese manufacturer, except they’re not Chinese, they’re Taiwanese. That’s the case with several of our [original design manufacturers (ODMs)] as well.”

Shifting production out of China doesn’t “happen overnight, especially for a smaller company like SVS,” Yacoubian said. “I can’t dictate supply chains, which means this is more of a threat to innovative smaller companies than it is to companies that can dictate their own supply chains, like an Apple.”

If the threat or actual burden of the List 4 tariffs “looks long-term, then we have to make a move” toward sourcing from Thailand or Eastern Europe, Yacoubian said. “We need to be competitive. One way or another, I’m going to be negatively affected if these Stage 4 tariffs get turned on.”

On whether SVS could reap better cost advantages by shifting production out of China, or staying put with Chinese sourcing despite the 25 percent tariff hit, “that’s the math problem,” the CEO said. “It’s close, so we don’t know. We’re still doing that math. There are benefits to the Czech Republic logistically because we have a significant European business.”

Building product in Thailand also has its benefits because it’s “somewhat the Wild West, the way China was 20 years ago, and so there are lower labor rates,” Yacoubian said. “Another misunderstanding about this is that Chinese manufacturing is all about low labor rates. Anybody who builds there will tell you their labor rates have risen very sharply.”

Asked if it’s worth the effort to convince Chinese suppliers to help shoulder the cost burdens of higher tariffs with their U.S. importer partners, Yacoubian said: “You try. Their margins are tighter than ours. Our part of the value chain at least involves branding. Their part of the value chain doesn’t involve anything. It’s tough. I don’t know where this all comes out.” Seeking factory lessons learned, Yacoubian consulted with friends whose companies were exposed to one or more of the first three tariff tranches, he said. “What I’m hearing for the most part is they got no help” from their Chinese factory partners, he said. “I don’t know if that will be our situation.”

SVS is “looking into those kinds of things” that could mitigate its exposure to the List 4 tariffs, Yacoubian said. “But the truth is, when your supply chain is identified as significantly from China, it doesn’t matter, or at least so we have been shown.” Rather than sourcing finished subwoofers from China, “we could do final assembly somewhere” from driver or amplifier components, or “we could build the cabinet somewhere,” Yacoubian said. “But when you add all that up, it exceeds 50 percent of the value of the product, and therefore it becomes China-sourced. This is the problem that a lot of companies that do manufacture product in the U.S. face right now.”

Yacoubian concedes he’s no trade “expert,” so “we’re just trying to learn as much as we can,” he said. He remains “active” within CTA, and said its "trade team" under Vice President-International Trade Sage Chandler has been “phenomenal” navigating member companies through the List 4 tariffs threat. “I’m so glad they have our back,” Yacoubian said.

The SVS CEO worries “there seems to be little or no regard for the human cost of the decisions that are being made” on trade policy inside the Trump administration. “Even if it negatively affects U.S. companies, even if it negatively affects U.S. workers, we’re going to charge forward ideologically to make this happen,” he said of the administration's tariff strategy. “That is a very dangerous dynamic.” The Office of the U.S. Trade Representative didn’t comment.

The administration is “very cognizant of political blowback,” Yacoubian said. “We’re moving into an election cycle, and the blowback from this last round of tariffs has been very intense. Companies like SVS were just trying to stay on the sidelines. I was just trying to lay low and make the donuts. I was not interested in being part of this narrative at all. But now that 100 percent of our products are affected, I’ve got to get up and speak out, and a lot of people like me are doing the same thing.”

If a CTA court challenge to block the List 4 tariffs can be “an effective step, then it needs to be looked at with great care,” Yacoubian said, emphasizing that he doesn’t speak for the association. “The most powerful thing would be for American companies to step up and explain the negative consequences of this, and bring more and more people to the opinion that these tariffs will have a very dangerous human toll.”

Yacoubian strongly believes the tariffs are “an existential threat to innovation,” he said. “Smaller innovative companies that can’t dictate supply chains will be disproportionately affected, like us. That word has to get out, because I think the most promising course of action is the political blowback in an election cycle when people realize tariffs are doing more harm than good.”

The CEO is “all for” negotiating with the Chinese on a comprehensive trade agreement, he said. “This just doesn’t feel like a negotiation. It feels like ideological saber-rattling, and that’s not a good thing.” Yacoubian finds it "a little bit demoralizing when the primary threat to your business isn't your competitive environment or the marketplace, but it's your own government," he said. "That's a tough pill to swallow."