Tariffs Impact US TV Imports
The Trump Administration tariffs have started to cut into TV Imports from China, and there are signs that monitor imports are surging ahead of potential tariffs to be imposed on December 15th, 2019. The latest data from the US International Trade Commission (ITC) import database shows that the electronics industry is slowly shifting smartphone production out of China to Vietnam, but that PC and related imports, including monitors, remain almost exclusively from China.
The US has now imposed four rounds of tariffs on Chinese imports, and while the first three rounds did not directly impact consumer goods using displays, the fourth round (List 4 as named by the US Trade Representative, who composes the list of goods) will impose a 10% tariff on nearly every remaining import from China not included in the first three rounds. List 4 was divided into two parts, with List 4A tariffs imposed starting on September 1st, 2019, including TVs, smartwatches and wearables, and List 4B tentatively scheduled to be imposed starting December 15th, 2019, and including smartphones, tablets, laptop and desktop PCs and monitors, and other consumer goods.
While smartphone imports continued to be dominated by China, the portion arriving from Vietnam has increased dramatically in 2019. Whereas China accounted for 80% of all smartphone imports in 2018, and Vietnam accounted for 11%, the China share has dropped to 74% this year, and the share from Vietnam has increased to 19%. Whereas overall smartphone imports in the first three quarters of 2019 are flat compared to 2018 with 153 million units imported, imports from Vietnam have increased 82% Y/Y while imports from China have decreased 7% Y/Y.
Quarterly US Smartphone Imports by Country, 2018 - 2019
It’s a different story in the portable computer category, which includes both laptop PCs and tablets, and where China’s dominance continues unabated. Imports of portable PCs from China have represented 93% of all such imports in 2019, an increase of 1% compared to 2018, as China-based imports have increased 7% Y/Y to 66.3 million units while imports from all countries increased only 6%. The share imported from second-place Vietnam declined slightly from 6% to 5%, and no other country accounted for more than 2% of imports. Similarly, there are no signs of a shift away from China in this category, as the share of imports from China remained at 93% in Q3.
In computer monitors, while there are no signs of a shift away from China as a source of imports, the threat of tariffs has impacted imports in another way, as imports surged in Q3. Total monitor imports in the first half of 2019 increased by 9% Y/Y to 17.3 million, which was already an unusual increase in a very mature market category, but imports increased by 28% Y/Y in Q3 to 11.3 million, and the share of imports from China increased from 94% to 95%.
Quarterly US Monitor Imports by Country, 2018 - 2019
Finally, we get to the TV market, where the first tariffs have been imposed. In recent years, up to and including 2018, the portion of TV imports from China has been increasing while the portion from Mexico has been decreasing, but the tariffs have reversed that trend as shown in the next chart. In the first half of 2019, the share of imports from China remained steady at 52% and the share of imports from Mexico held steady at 42%, as TV imports from both countries increased by 23% Y/Y. In the third quarter, however, while imports from Mexico kept close to the same growth pace with a 22% increase Y/Y, imports from China declined by 29% Y/Y.
Quarterly US TV Imports by Country, 2017 - 2019
The decline in imports cut across screen size categories, but had the biggest impact in smaller-screen TVs. Imports from China of TVs over 45” declined 7% Y/Y in Q3, while imports of smaller size TVs declined by 39%. Mexico was the beneficiary, as imports of TVs smaller than 45” increased 29% Y/Y in Q3, compared with a 20% increase in larger TVs.
The import figures in terms of value show the same basic trend, although the share of imports from China has been much lower in dollar terms than in unit terms. China’s share of TV imports in 2018 in terms of value was only 35%, while Mexico’s share was 62%. In Q3 2019, China’s share of TV imports in dollar terms dropped to 26% as imports declined by 22% from the prior year.
A look at the TV import data on a Monthly Basis shows how imports from China started declining in August, then dropped further when the tariffs took effect. The first chart in this sequence shows monthly TV imports from all countries. The pattern of imports is remarkably consistent year after year, with imports increasing throughout the year until October, then dropping off in November and December. Imports were noticeably higher in Q4 2018 and into Q1 2019, driven by both low panel prices and an initial fear of import tariffs.
Monthly US TV Imports from All Countries, 2016 - 2019
The second chart in this sequence shows monthly imports from China, and it’s clear that last winter’s surge of imports came from that country. TV imports from China increased by high double-digit or triple digit percentages in every month from October 2018 through February 2019, with an incredible 122% increase in December 2019.
It’s also clear that the slowdown started in August 2019. Up to and including July 2019, TV imports from China had increased on a Y/Y basis for 20 of the prior 21 months, with only a 1% decline in May 2019 marring the winning streak. In August 2019, though, TV imports from China declined 25% Y/Y, and in September the decline worsened to 54%.
Monthly US TV Imports from China, 2016 - 2019
Last in this sequence we show the monthly TV imports from Mexico. Mexico TV imports had dropped in 2017-2018 from the 2016 levels, as China took a larger share of imports, but in 2019 Mexico shipments have recovered. TV imports from Mexico have increased Y/Y for each of the last 15 months. It’s noteworthy, though, that the increase in imports from Mexico is smaller than the decrease in imports from China. Looking back at the chart of imports from all countries, you can see a decline starting in August and getting worse in September.
Monthly US TV Imports from Mexico, 2016 - 2019
The slowdown of TV imports from China has had a wide-ranging impact on the TV and display industry, as combined with an oversupply of TV panels it has driven TV panel prices down to all-time lows and down to cash costs, or even lower. The total value of the tariffs, though, is not an impressive figure, at least not yet. September TV imports from China amounted to $245 million, which means that importers paid $24.5 million of additional tariffs on these TVs (additional, because even before the current trade war TVs from China were subjected to a 3.9% tariff). The Wall St. Journal reported that the US Treasury took in a record $7 billion in tariff revenue in September, including about $5 billion in tariffs on China imports and $1.6 billion in tariffs in List 4A products imposed on September 1st. TVs represented less than 2% of the List 4A tariffs.
What can we conclude from the Q3 ITC import data? Here are a few of my takeaways:
- Smartphones continue to be dominated by China, but Vietnam is gaining share of US imports. Smartphones are vulnerable to a tariff increase if the List 4B tariffs go into effect on December 15th, 2019, which will occur unless the US and China make a deal before then. There is no sign of a surge in smartphone imports ahead of the tariff increase.
- Portable PC imports continue to be dominated by China with little sign of a shift to other countries. As with smartphones, these products are on List 4B, and there is no sign of an import surge.
- Monitor imports continued to be dominated by China, and there has been a surge of imports ahead of the potential tariff increase on these products. Monitors are part of List 4B and so will have tariffs imposed on December 15th if no deal is reached, but Q3 imports increased by 28% Y/Y. This means that 2-3 million monitors were imported in Q3 ahead of demand, which will have a negative impact on the monitor panel market when this inventory gets absorbed.
- Taiwan panel makers in Q3 shifted their product mix to IT products as monitor and notebook panel prices have held up better than TV panel prices. The product mix shifts at AUO and Innolux helped prevent those companies from reporting even larger losses, but these mix shifts were only possible with a surge in monitor panel demand driven by the need to speed up shipments to the US to avoid a tariff. With Chinese panel makers now also targeting the IT market, and with a potential slowdown in demand after December, we can expect monitor panel prices to decline toward TV levels on an area basis, with a negative impact on the bottom line for Taiwan panel makers.
- Tariffs on TVs have reversed the trend in recent years towards China and away from Mexico as a source of US TV imports. While Mexico imports have increased, total imports have declined as the decline in China is larger. We expect this shift back to Mexico production will continue as long as the tariffs are in place, and potentially longer if a tariff threat remains.