The display industry, and the electronics device industry which it supplies, has established an efficient global supply chain that has generated increasingly powerful and beautiful products at ever-lower prices. This global supply approach, though, faces its greatest political challenge with the presidency of Donald Trump. The new president, during his election campaign and since the election, has repeatedly called for imposing a 35% import tariff on goods from Mexico, and as much as a 45% tariff on goods from China. Since 95% of TV imports into the US come from those two countries, such a move, if implemented, would profoundly disrupt the industry, Even before any additional tariffs are implemented, there are a few companies working to implement some US manufacturing.
America’s biggest retailer Walmart has driven some of this push, as part of a general shift across all industries. Decades ago, Walmart contributed to the growth of China’s assembly industry by shifting sourcing of electronics and other goods from US suppliers to China importers. In a case where I personally participated in hearings, Walmart was found guilty of importing dumped CRT TVs from Chinese suppliers in the waning days of the tube industry. As labor costs in China increased, though, and perhaps recognizing the shifting political landscape, Walmart started in 2013 to push for increased US manufacturing, saying it wants to spend $250 billion on US-made products by 2023.
Today Walmart sells one of the few electronics products assembled in the US, from Winnsboro, South Carolina-based Element Electronics. Element offers a line of TVs in sizes from 19” to 65”, selling only at Walmart, and an important part of their value proposition is that the product is assembled in the USA.
During and after the CES show, I spoke with a former Philips colleague who now works for a contract manufacturer similar to Element. In fact, Lotus International, in Canton, MI, assembled Element TVs several years ago under contract, before Element set up their own facility in South Carolina. This discussion gave some insight on the economics of a decision to shift to US assembly.
My colleague indicated that other retailers are looking to add a US-based product to their portfolio, and a number of manufacturers who currently lack North American operations are likely to start contracting with Lotus this year. It’s worth noting that these products don’t claim to be “made” in the USA, instead they use the term “assembled”. Only the final assembly occurs in the US, all the components are imported in “kits” which contain all the materials (display, boards, mechanical parts, even the packaging and user manuals) for the final product.
If everything is imported, why bother with assembly in the US? One reason is the import duty advantage. TVs imported from outside North America are subject to a 3.9% duty (Harmonized Tariff code 8528.72.64), and while TVs imported into the US from Mexico are duty-free under NAFTA, the Mexican government requires a higher value-added content than simple kit assembly to qualify as a Mexican-made TV. Of course, if NAFTA is renegotiated as promised by President Trump, all bets are off. TV “kits” consisting of all the parts of a TV but incomplete or unfinished (Harmonized Tariff code 8528.72.04) can be imported to the US duty free from any country under most-favored-nation rules.
A second reason for US assembly, according to Lotus, is savings on returns and damage. A ½% difference in return rate can more than pay for the labor cost of US assembly, and final inspection and testing on a US assembly line, coupled with shorter supply and shipping times, improves reliability.
Although an increase in US assembly is likely, a significant increase in US supply to the electronics industry is much less so. Even components like the mechanical structure of the TV set (bezel and back) benefit from the huge economies of scale of the global industry. Although there are certainly capable suppliers in the US to produce these plastic parts, the tooling costs for large extruded components make it economical to have a single global source unless volumes reach into the hundreds of thousands, which would apply only to the top 2-3 brands in the US, all of whom currently have operations in Mexico.