Pandemic Hit US Electronic Imports, but TV Imports from China Recover in Q2 Despite Tariffs
US imports of electronics goods in the second quarter of 2020 declined by 11% Y/Y to $73.1 billion despite high demand for TVs, according to analysis of data released by the US International Trade Commission (US ITC). While imports from China declined on a Y/Y basis, they recovered from Q1 lows despite the pandemic and punitive tariffs on TVs, and Mexico was the region hardest hit by the pandemic.
During 2019, the Trump administration implemented a series of tariffs hitting Chinese exports to the US, including some tariffs on electronics goods, as part of a growing trade war. Although Trump made a well-publicized “Phase 1” deal with China in mid-January that represented a type of cease-fire in the trade war, tariffs on certain goods, and especially a 7.5% tariff on TVs, remain in place. Those tariffs combined with the COVID-19 pandemic led to a dramatic reduction in imports from China in Q1 2020, but Q2 saw a partial rebound of China imports.
While we believe that Q1 trade flows from China were impacted by the pandemic from the supply side, with worker shortages and lockdowns affecting factory production, we do not believe that the supply-side effects extended into Q2. In contrast, while there was relatively little impact of the pandemic on US demand for imports in Q1 (since the first lockdowns happened in mid-March), the second quarter saw the full impact of COVID-19 on the demand side in the US, with some positive as well as negative implications for electronic goods.
We reviewed the import figures for TVs, monitors, mobile PCs (which includes notebooks and tablets) and phones, which combined comprise about 98% of display industry sales in area terms. We’ll start with the big picture, covering all goods in Chapter 85 of the Harmonized Tariff Schedule (HTS), which covers TVs, smartphones and most other electronics goods (except PCs, which are in chapter 84). Chapter 85 goods represented $345 billion in imports to the US in 2019, about 11% of the value of all imports, and as shown in the chart China remained the biggest supplier of these goods to the US in 2019 with $130 billion or 38%.
In Q2 2019, China remained the largest source of electronics imports, with China’s revenue share recovering from 27% in Q1 to 34% in Q1. China imports declined by 17% Y/Y from $30.4 billion in Q2 2019 to $25.2 billion in Q2 2020. Mexico fared worse in Q2, with imports declining 36% Y/Y from $15.7 billion to $10.0 billion.
The combined $10.9 billion of reduced imports from China and Mexico was larger than the reduction of total electronics imports, which fell by 11% from $82 billion to $73 billion, as some other countries saw imports increasing. Electronics imports from Vietnam increased by 22% to $4.9 billion, and those from Taiwan increased 13% to $4.4 billion. Imports from “all other” countries outside the top 7 increased by 9% Y/Y to $16.6 billion.
US Imports of HTS Chapter 85 Goods by Country, 1Q 2018 to 2Q 2020
In the biggest single revenue category within electronics, smartphones, we saw a general decline in imports, as shown in the next chart, but China was less affected than other countries. While the industry shifted to Vietnam significantly in 2019, China increased its share of imports in this category in Q2, at least in revenue terms. Overall, smartphone imports in Q2 2020 declined by 13% Y/Y in both unit terms and revenue terms. China imports declined by 13% in unit terms but only by 5% in revenue terms in Q2 2020, as the average price of a smartphone imported from China increased from $241 to $263. These figures were undoubtedly helped by strong iPhone sales in Q2, since Apple imports all of its phones from China. Imports from Vietnam decreased by 29% Y/Y in revenue terms, and those from South Korea plummeted by 72% Y/Y, as China’s revenue share of smartphone imports increased to 82% in Q2.
While the numbers are too small to show on the revenue chart, India emerged as the third-largest source of imports in unit terms in in the first half of 2020, and the fourth-largest in revenue terms, with more than one million phones each quarter to get 2.5% unit share and 1.4% revenue share of imports in Q2. Smartphone imports from India increased 814% Y/Y in revenue terms.
US Imports of Phones by Country by Quarter, 1Q 2018 to 2Q 2020
The pandemic had a favorable impact on PC demand fed by WFH and LFH trends, and this showed clearly in the import figures for Q2. While there was a slight shift away from China in PC imports, China continues to dominate the mobile PC segment.
Overall imports of mobile PCs (a category which includes notebook PCs and tablets) in Q2 2020 more than doubled from a pandemic-hindered Q1 and increased by 14% Y/Y to 31.1 million units. Imports of mobile PCs from China increased by 13% Y/Y to 28.6 million, and China remained the source for 92% of mobile PC imports in Q2. Imports from Vietnam also increased largely in line with the market, by 11% to 1.5 million, but imports from Taiwan increased by 86% Y/Y to 630,000.
In value terms, mobile PC imports increased by an even healthier 23% Y/Y to $13.6 billion, with China representing 93% of mobile PC imports by value, as shown in the next chart here. Mobile PC imports reached their highest value since Q4 2013, with the average price of a mobile PC import increasing from $406 in Q2 2019 to $437 in Q2 2020.
US Imports of Mobile PCs by Country by Quarter, 1Q 2018 to 2Q 2020
If we consider that supply-side problems related to the pandemic hindered mobile PC imports in Q1, and that these problems abated in Q2, there may still be some room for continued strength in the PC segment in Q3 (which is consistent with the reports we hear from industry sources). Total unit volume of mobile PC imports for the first half of 2020 amounted to 45.6 million units, a mere 1% increase Y/Y from the first half of 2019. Given the continuation of lockdowns in the US and the increasing likelihood of remote learning as the main option for schools, we can expect Q3 to show a significant increase over the 26.5 million mobile PCs shipped in Q3 2019.
Similar to mobile PCs, imports of monitors recovered strongly in Q2. Monitor imports from all countries increased by 27% in unit terms, and by 11% in revenue terms in Q2, with China imports largely keeping pace with the total. China monitor imports increased 28% in unit terms to 10.9 million, and by 12% in revenue terms to $1.4 billion. As the chart indicates, China continues to dominate monitor imports with 95% unit share in Q2 2020, consistent with Q2 2019. The revenue share of monitors from China rebounded from a Q1 low of 73% to 87% in Q2, a slight increase in share Y/Y. Imports from Mexico plummeted 55% in unit terms and 42% in revenue terms.
US Imports of Monitors by Country by Quarter, Q1 2018 to Q2 2020
The sharply lower figures for monitor imports in Q1 2020 may have been at least partly a result of a big inventory build-up in the 2nd half of 2019, as shown on the chart. Monitor unit imports increased dramatically in the 2nd half of 2019 without any specific demand drivers. This was apparently a build-up in fear of US tariffs that were threatened but averted by the “Phase 1” trade deal agreed by the US and China in January. AUO noted in its Q4 earnings call that monitor brands and makers “stockpiled their inventories over concerns of U.S. and China trade tensions” in the second half of 2019, and that’s exactly what the US import data suggests. The imports of monitors over the nine-month period from July 2019 to March 2020 was down 1% compared to the prior year, suggesting that the slowdown in Q1 2020 absorbed the inventory glut. This might suggest that the 27% increase in monitor units in Q2 2020 reflects a true picture of pandemic-driven demand.
Finally, we turn to TVs, which alone among the major display industry applications has been hit with tariffs as part of the trade war. The US implemented a 15% punitive tariff on TV imports from China as of September 1st, 2019, on top of the pre-existing 3.9% tariff. This compares with zero tariff on TVs imported from Mexico under USMCA. The punitive tariff was reduced to 7.5% as part of the Phase 1 deal implemented in January 2020, leaving China TVs with a total tariff of 11.4%. The result was a dramatic decrease in imports from China in the 2nd half of 2019, which continued in Q1 2020, but reversed in Q2.
The charts show the surge of TV imports from China that came in the 2nd half of 2018, based on fear of a tariff, and then the dramatic decline in China imports starting in the 2nd half of 2019 as the tariff went into effect, which continued in Q1 2020. In Q2 2020, however, China TV imports rebounded, increasing by 189% Q/Q in unit terms and 138% Q/Q in revenue terms from Q1. China TV imports increased Y/Y by 9% in unit terms to 4.7 million, although revenue declined by 28% Y/Y.
Meanwhile, Mexico imports in Q2 2020 increased by 24% Y/Y in unit terms, but declined by 7% Y/Y in revenues. TV imports from Vietnam increased from essentially zero in Q2 2019 to more than 10% of imports in unit terms, 1.2 million, in Q2 2020. With lower average prices Vietnam received less than 7% of TV revenues.
Based on the Phase 1 tariff rate for TVs of 11.4%, importers of TVs from China had to pay $74 million in tariffs to the US treasury in Q2, a big increase from $31 million in Q1. The tariff represented an extra $15.68 per TV for those imported from China, but as indicated by the average prices of imports, this still left TVs imported from China as a much lower cost than those imported from Mexico.
US TV Imports by Country and Screen Size group, Units, Q1 2018 to Q2 2020
US TV Imports by Country and Screen Size group, Revenues, Q1 2018 to Q2 2020
The average price of TV imports dropped dramatically in Q2 2020, falling by 30% Y/Y to $218. The average price of TVs from China fell at an even greater pace, by 34% Y/Y to $137. Although the calculation of average TV price might underestimate the price drop for similar products, because the average TV screen size is increasing over time, this was not likely to be a factor in the China imports. China TVs larger than 45” saw a price decline of 36% Y/Y to $181, while those smaller than 45” saw a price decline of 33% to $105.
The price decline for TVs from China overwhelmed the impact of the Phase 1 tariff. If we calculate the “landed” price including tariff, the prices declined from $217 in Q2 2019 to $153 in Q2 2020, a 30% drop.
Mexico TV imports for >45” sizes had an average price drop of 25% to $373, while those under 45” had a price drop of only 14% to $157. The average price for TV imports from Mexico across all sizes decreased 26% to $316 because the proportion of smaller size TVs increased.
In light of this data, what’s going on with the TV supply chain? Here’s our take:
- As we’ve reported from Stephen Baker’s address to the SID/DSCC Business Conference, TV sales in the US surged starting in mid-March. Baker reported that retailers were seeing spot shortages in mid-May, as the April sales surge had depleted inventories, but the supply chain responded.
- DSCC sources in Asia have reported that TV imports directly from China surged in Q2 in order to speed up delivery to retailers. The supply chain of TVs made in China, where LCD module assembly is often co-located with TV assembly, can deliver TVs to the US faster than the more circuitous route of LCD panels made in Asia, sent to Mexico for assembly into TVs, and then imported into the US. This difference can be several weeks in normal times, and may have been exacerbated by increased wait times at the US-Mexico border due to the pandemic.
- While TV assembly in Vietnam also involves a longer supply chain compared to China, the increase in TV imports from Vietnam is very likely part of a structural shift, rather than a one-time event.
- The decrease in LCD TV panel prices throughout 2019 has led to lower TV prices across the board. LCD TV panel prices in Q2 2020 declined by an average of 20% compared to the same quarter in 2019, and this led to lower TV prices regardless of the country of the TV imports.
- The decrease in TV prices from China was 10-20% greater than the decrease in TV prices from Mexico. Although it’s possible that there were brand mix or product mix changes that can help to explain this difference, it also demonstrates the incentive that importers have to book import prices as low as possible, to reduce the tariff. Many TV imports are made by retailers such as WalMart and Best Buy; the cost of TV imports reduces profits in the US and in absence of a tariff the retailers may want to maximize import prices to reduce US tax obligations. With the tariff this calculus shifts toward wanting to minimize import prices.
Overall, it appears that while COVID-19 has reduced the level of smartphone imports because of reduced demand for smartphones, the impact of the pandemic on the demand side led to increases in imports for mobile PCs, monitors and TVs. China continues to dominate the supply chain for smartphones, mobile PCs and monitors, and China benefited from the surge in TV demand by responding quickly with supply. Despite the tariffs on TVs, China continues to be the preferred workshop for the electronics industry.