TVs Would Bear Especially Heavy Burden in USTR's Proposed Chinese Tariff List

“This is a big impact on TV,” Bob O’Brien, president of Display Supply Chain Consultants, told us. All products classified in the 85287264 subheading of the U.S. Harmonized Tariff Schedule (HTS) would be prone to tariffs, “which is basically all TVs” imported from China, he said. He estimates 18.8 million TVs with a value of $3.9 billion were imported from China in 2017 under the 85287264 classification. If tariffs are imposed on $50 billion worth of goods, as the USTR proposes to do, and 1,200 product categories are targeted on the list, TVs “must be one of the biggest ones,” said O’Brien. “This would have a huge impact on the TV supply chain.”

Don’t be fooled that the HTS defines the 85287264 classification as including any color TV “reception apparatus” with a flat-panel screen, video display diagonal larger than 34.29 cm (13.5 inches), “incorporating a VCR or player,” said O’Brien. Though TV makers stopped building VCRs into their sets decades ago, trade authorities have ruled that if a TV under the 85287264 subheading has a port for accepting something like a Google Chrome stick, “that constitutes a device that incorporates a video recording apparatus,” or video player, and currently qualifies for a lower import duty than sets that don't, he said. Virtually all TVs imported from China have those ports, he said.

Computers are not on the USTR’s list for proposed tariffs, nor are computer monitors, $5 billion worth of which were imported from China last year, “but TVs are,” said O’Brien. He speculated the USTR placed a heavy emphasis on TVs in the list because “it’s an area of big importance, so it would be capturing a lot of value.” Foxconn in Wisconsin would be an obvious beneficiary of 25 percent tariffs on TVs imported from China (see 1711130014), he said. “It’s expected by the second half of this year, if they’re starting to make TVs in the States, it certainly would be a boost if half the TVs imported into the States all of a sudden had a 25 percent duty attached.”

CTA sent member companies a survey form last week asking for data on individual members' Chinese import practices, including whether the company would “be able to switch its sourcing from China to another country” if tariffs are imposed, said O’Brien, who received the survey himself. CTA also asked companies to specify how many employees it has, suggesting it will use the information in testimony to sway the USTR not to impose tariffs because it would threaten jobs, he said. The form asks companies to send CTA their responses by Friday, he said.

O’Brien wouldn’t speculate on the possible economic impact of TV tariffs, or the potential damage to the supply chain, if the tariffs go through, but he posed the question: “The key thing is, does this really happen?” If the tariffs happen, "it has a huge impact on TV because you’re going to have every TV maker scramble to do things differently. It favors some of the larger players who actually have operations in Mexico.”

Companies facing stiffer challenges would include Best Buy, which sources virtually all its private-label Insignia-brand TVs from China, said O’Brien. “Those companies would need to scramble to get some sort of production in a new place.” Best Buy hails the Trump administration’s “desire to ensure that our trade partners are using fair practices,” emailed spokesman Jeffrey Shelman. “We look forward to the opportunity to share our thoughts on the proposed list of products and on how to make sure these measures do not inadvertently hurt millions of American families, students, small businesses, and schools by causing them to pay substantially more for the consumer electronics they rely on every day.”

O’Brien’s sense is there’s “a pretty wide range of preparedness” among TV makers if the proposed tariffs go through, he said. “Any company that hasn’t been thinking about this at all is just criminally negligent, because this has been out in the news and it was such an important part of Trump’s campaign,” he said. “If this is a total surprise to you, then you don’t belong in this business.”

The “bigger” players in the TV business, “they’ve probably got several options on the table, and probably have a systematic approach to what they’re going to do if certain things happen,” including the possibility of expanding production in Mexico, said O’Brien. So far, he sees no evidence of an uptick in TV assembly production in Mexico, he said. If anything, TV assembly trended more toward China last year and less from Mexico, he said. The U.S. imported 18.3 million TVs worth $8.4 billion from Mexico in 2017, compared with 22.7 million TVs worth $8.7 billion in 2016, he said. The U.S. in 2017 imported 19.4 million sets from China worth $3.9 billion, compared with the 17.4 million TVs worth $3.3 billion shipped from China in 2016, he said.

CTA’s Shapiro, in his Wednesday statement, said targeting TVs as a “staple of brick-and-mortar retailing makes no sense given the president's recent concern” for retailers’ “economic viability” in light of Trump's attacks on Amazon. All the “proposed tariffs and China's equivalent response are a poison pill to U.S. manufacturing, production, our innovation economy and American pocketbooks,” said Shapiro. CTA is “reviewing the list of products” released by the USTR “to gauge the potential impact,” he said. “We urge companies and consumers to take action, make their voices heard and tell the administration just how much damage this would do to American jobs and our economy."

Further fueling fears of a trade war, the Chinese Embassy in Washington released a statement Tuesday saying it "strongly condemns and firmly opposes” the proposed list of products and tariffs. “Such unilateralistic and protectionist action has gravely violated fundamental principles and values” of the World Trade Organization, it said. “It serves neither China's interest, nor U.S. interest, even less the interest of the global economy. As the Chinese saying goes, it is only polite to reciprocate.”

The National Retail Federation, though “pleased that many everyday products such as clothing and shoes are not on the list,” remains “concerned that other goods such as consumer electronics and home appliances are targets,” said CEO Matthew Shay. “This entire process creates uncertainty and makes it difficult for retail companies that must rely on complicated global supply chains. Tariffs threaten to hurt consumers, jeopardize job creation and increase the cost of doing business.”

The Information Technology and Innovation Foundation thinks the Trump administration “is right to push back against China's abuse of economic and trade policy, but imposing tariffs on producer goods will inadvertently hurt Americans through reduced capital investment and lower productivity growth,” said President Robert Atkinson. The tariffs that USTR proposed “would hurt companies in the U.S. by raising the prices and reducing consumption of the capital equipment they rely on to produce their goods and services,” he said.

The U.S. Chamber of Commerce agrees the administration “is rightly focused on restoring equity and fairness in our trade relationship with China,” said Myron Brilliant, executive vice president-international affairs. “However, imposing taxes on products used daily by American consumers and job creators is not the way to achieve those ends.”

The list of products targeted for proposed tariffs was developed after trade analysts from several agencies “identified products that benefit from Chinese industrial policies,” said the USTR notice accompanying the list. Specific products were removed from the list when “identified by analysts as likely to cause disruptions to the U.S. economy, and tariff lines that are subject to legal or administrative constraints,” it said. "The remaining products were ranked according to the likely impact on U.S. consumers, based on available trade data involving alternative country sources for each product.”

The products listed are worth about $50 billion “in terms of estimated annual trade value for calendar year 2018,” said the notice. “This level is appropriate both in light of the estimated harm to the U.S. economy, and to obtain elimination of China’s harmful acts, policies, and practices.”

Written comments about products on the list are due May 11, and the USTR scheduled a public hearing for May 15 at International Trade Commission headquarters. Written requests to testify at the hearing are due April 23. Written comments to rebut testimony presented at the hearing are due May 22.