Three Ways the Newest US Tariff Announcement Could Affect the Domestic Smartphone Market and Beyond

On Tuesday April 3rd, President Trump unveiled a list of 1,300 Chinese imports that it will subject to a 25% increase in import duty, amounting to approximately $50 billion in annual trade value. Sectors covered by the proposed tariffs include products used for healthcare, agriculture, information technology, communication technology, and aerospace. China has already responded announcing their own 25% levy on 106 U.S. products including soy, cars, and chemicals. Despite these escalations and tit-for-tat announcements, the US will not make any binding announcements until the end of May, as we enter a period for comments and review of the proposed list.

U.S. Trade Representative Robert Lighthizer said that the proposed tariffs were specifically selected as they have the lowest impact on the US consumer. The list has been void of many consumer-focused items such as cellphones and laptops, as well as clothing and footwear. However, while many consumer goods have been currently left off, electronic components such as for telecommunication equipment, semiconductor components, and touch screens are still affected. How do we interpret these newest announcements?

What it means for ETO

  • One of the biggest areas that these tariffs will impact is in emerging tech opportunities such as the domestic development and rollout of 5G infrastructure and autonomous vehicles. Many of the proposed tariffs affect semiconductor components as well as telecommunication components. In the telecommunication sector all of the Big 4 carriers are seeking to expand their infrastructure and upgrade to 5G over the next years. They may now have to factor in a 25% increase in their costs or begin looking at new partners either domestically or abroad to continue on their 5G roadmap.
  • For the telecommunications sector, some of the proposed tariffs include:

o   Printed circuit assemblies of the goods of subheading 8504.40 or 8504.50 for telecommunication apparatus

o   Electrical machines and apparatus nesoi, designed for connection to telegraphic or telephonic apparatus, instruments or networks

o   Oscilloscopes and oscillographs, specially designed for telecommunications

o   Instruments and apparatus specially designed for telecommunications

o   Optical fiber cables made up of individually sheathed fibers

What it means for cellphone imports:

  • Now that there is a clear list of proposed items to be taxed, much of the telecom industry can breathe a sigh of relief. While tariffs and a potential trade war are still not ideal for the US market, the impact on the cellphone market was less than expected, which means that companies and consumers have much less to worry about. However, there still are some uncertainties that should be watched closely. While the next imported iPhone may not have a 25% increase in taxes, there may still be some “hidden” increases that can drive up costs as components might be affected by tariffs. Manufacturing is a big area that is targeted by the tariffs which could increase costs of production of components that are made in the US and get sent back into the global supply chain.

What it means for the secondary cellphone markets:

  • Lastly, if the tariffs go through as they are, we might also see some changes to the repair and refurb market for cellphones in the US. Touch screens, often the most expensive component of cellphones, are on the list which would drive up prices for repairs and refurbished devices for consumers. This could affect major operators (e.g. Verizon), OEMs (e.g. Apple) and major distributors (e.g. Brightstar) as they have full life-cycle services.

There remain many unknowns and we are still very early in the process of approving the tariffs. The review period just began, and nothing will be set in stone until the end of May. USTR Robert Lighthizer emphasized that these tariffs were chosen as they had the least impact on the consumer, but further escalations with China seem a possibility given the most recent rhetoric from Beijing. We will need to watch closely as this develops and companies should be aware about how their supply chains will be affected by the tariffs once implemented.

Maurice Klaehne is a Senior Analyst with Counterpoint Technology Market Research, based out of Boston, USA. He has spent more than five years working as a market researcher and strategy consultant heavily focused on emerging markets and uncovering new growth opportunities for his clients which include business service, CPG, healthcare, and life science companies. Maurice holds a Master’s in International Development and Management from Sweden’s Lund University, and an undergraduate degree in Political Science and International Development from Canada’s McGill University. He is a native German speaker and also speaks fluent French.

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