As part of the ongoing trade dispute with China, the United States government imposed a 10% tariff on roughly $200 billion worth of imported Chinese goods back on September 24, 2018. If that sounds bad, it could get worse: that rate is expected to escalate to 25% this year if no agreements between Presidents Trump and Xi Jinping are made.
A significant portion of the goods affected by this trade dispute is computers and other electronics — roughly 45%, according to data from The Observatory of Economic Complexity. As such, prices for pre-built desktops and electronic components such as power supplies, motherboards, video cards, SSDs, mice, CPU coolers, and cases will likely increase.
How will this affect SMB budgets?
Generally, the tax increase on imported goods from China will have to be passed on to consumers for small- to medium-sized businesses (SMBs) to continue making profits. Any material that arrives in a US port gets the 10% tax applied to it, but it’s possible that some companies have already stocked goods in warehouses across the US in anticipation of the tariff increase.
What will a new computer hardware cost post-tariff?
For example, video cards can have profit margins of less than 3 to 4%. That means a 10% tariff puts the product at a loss and vendors need a new way to recoup their costs, which in this case, is increasing prices for end users.
On the other hand, smart devices such as smartwatches, laptops, and Bluetooth-enabled gadgets will be exempt from the tax increase.
Which companies are affected?
Unfortunately, the tariff affects all companies that make electronic components that come from China, such as Dell, HP, Cisco, Apple, Intel, and Microsoft. This doesn’t come as a surprise, though: President Trump introduced the new tax to encourage manufacturers to move their plants in the United States, where obviously, zero tariffs will be imposed. Dell has already imposed a 15% increase on its resellers.
It won’t be easy for manufacturers to just move their manufacturing plants to the US, however. China is attractive to tech companies because its workforce is generally cheaper, and plants that produce individual components are close to one another. Moving their manufacturing processes to the other side of the globe could end up forcing them to raise prices by even more than 10% to retain their profits.
While some original equipment manufacturers (OEMs) are rerouting their products to other countries before sending them to the US, others are already moving production to other factories entirely. Many large manufacturers have facilities outside of China and the US and can move at least small amounts of production without building new factories.
What does it mean for your business?
The tariff will undoubtedly have an effect on your businesses’ partnerships with clients. For instance, the higher costs will likely jeopardize contractual price commitments, forcing owners to lay off a significant number of employees.
However, there is still a chance that China and the US will strike a deal and put this dispute behind them. Until then, the tariff remains in effect.
F1 Solutions offers comprehensive IT solutions that are tailor-made to work for your specific business model. We can upgrade or manage your current infrastructure, and advise before you purchase new tech, ensuring you buy what you truly need. Drop us a line today to know more.