The Consumer Technology Association (CTA), meanwhile, continued to criticize the tariffs in July, noting that consumers have already been paying higher prices for many products in the sector as a result of the tariffs, even if the items in question haven't been TVs thus far. "Although the Trump administration has paused on enacting further tariffs, U.S. workers, families and businesses are still paying billions of dollars more than they otherwise would--again proving that tariffs are nothing more than taxes," Gary Shapiro, CTA president and CEO, said in a statement July 17. He added: "The economic pain for everyday Americans and our companies will only grow, since tariffs have more than doubled on the largest list of products. While we support President Trump's effort to stop China's forced technology transfers and IP theft, this unpredictable trade policy forces American companies to absorb rising costs."
The U.S. technology industry ended up paying a 2019 record amount for Section 301 tariffs on imported Chinese products in May--a whopping $1.3 billion, "more than six times higher than May of 2018 despite a 31 percent decline in imports," CTA said, adding tariffs paid by the tech industry "likely will rise even higher in the coming months, as the latest hike to 25 percent on List 3 products didn't take effect until May 11." Tariffs on CTA-identified tech products--about 70 percent of which are on List 3--have averaged $1 billion more each month as a result of the tariff dispute, it said.
The second major unexpected result of the tariff dispute, meanwhile, has been the boost for smart TVs overall, especially Roku TVs, IHS Markit said on July 24. Smart TVs in the first quarter of 2019 accounted for 89 percent of TV shipments into North America, a record high for the region, it said, noting that represented a significant increase from 75 percent in Q1 2018. Shipments of Roku-based smart TVs represented 37 percent of the total North American smart TV market in Q1, up from 23 percent in Q4, IHS Markit said. Roku's North American market share stood out from other regions because the OS has merely an 8-percent share of smart TV shipments globally, it noted.
"Ironically, U.S.-based Roku's achievement is tied to the success of Chinese television makers--companies that are among the targets of U.S. tariffs," the research company pointed out. "Fears of increased tariffs arising from the U.S./China trade dispute spurred TCL and other TV brands reliant on Chinese manufacturing to increase shipments to North America in early 2019," Paul Gray, research director at IHS Markit, said in the announcement of his company's findings. He added: "These companies hoped to build safety stocks and generate as much sales volume as possible before pricing was impacted by the tariffs. This strategy boosted sales of Chinese-made smart TVs during the quarter."
Chinese smart TVs tend to use the Roku OS, in stark contrast to more established TV brand names, including LG and Samsung, which usually use their own operating systems, IHS Markit pointed out. "The boom in Chinese TV sales put Roku at the top of the North American market for the first time since the third quarter of 2017," Gray said, noting: "Roku outstripped Samsung's Tizen and LG's webOS because of the popularity of the low-priced Chinese smart TVs. In turn, Chinese TV prices dropped due to the unforeseen consequences of the tariff threats, leading to a short plunge in pricing."
Looking ahead, IHS Markit is "working on the forecast assumption that any tariffs will be small if at all," Gray told me. But he warned: "If they are at the 28 percent level, then all bets are off."
The industry "clearly over-shipped to build inventory" in Q4 2018 and Q1 2019, he said, predicting that if tariffs go ahead, the inventory is "trickled out and we then see a subsequent quietening of the market as demand falls, both from a lack of promotion and rising prices." But, if tariffs don't go full speed ahead, "there will be a lull in shipments as inventory is corrected," he said, adding: "Shipments will fall although sell-out would be similar. Already, some promotions will have been lost as nobody would be prepared to commit (retailers to plan them and TV vendors to make supply contracts at fixed prices). Out of all this to-and-fro: I would expect a reduction in Roku's share later in the year due to these inventory moves."
Since this article was written, the Fed lowered interest rates for the first time since 2008, which some pundits blamed on an overall slowing economy. Fed Chairman Jerome Powell said the cut to the lending rate was a "mid-cycle adjustment" as opposed to a rate cutting cycle.
The Dow Index finished the day down significantly despite trading at near all-time highs. The U.S. economy has been growing for the longest period in our country's history (121 months since June 2009, which breaks the previous record run from March 1991 to March 2001), and the ongoing trade battle with China is creating uncertainty in the market. More and more electronics companies are moving their manufacturing from China to other Asian countries like Vietnam and Taiwan (and even Mexico, as mentioned above) to offset risk.
• The Impact of Trump's Tariffs & Tax Cuts on the CE Industry at HomeTheaterReview.
• Trump's Technology Tariffs Create Continued Uncertainty for the AV Industry at HomeTheaterReview.
• How Will a Potential 2019 Real Estate Recession Affect Specialty A/V? at HomeTheaterReview.