US-China Trade War Will Hit Display Industry
When the news this week hit on President Trump’s tweets about raising tariffs on $300 billion in imports from China, I knew it deserved mention in this blog. I have been saying for quite some time about the US-China trade war that “it will get worse before it gets better”, and up to now I’ve been right. The latest round will be implemented on September 1st unless the US and China reach a deal before then, which I think is unlikely.
I last wrote about tariffs in the DSCC Weekly Review two months ago, but at that time it was about Trump’s threat to impose tariffs on Mexico to push that country to reduce the number of migrants. That threat was quickly averted by a US-Mexico deal, and Trump claimed victory. Clearly the president believes that this is an effective tactic to get what he wants.
The next wave will hit nearly all the products not included in prior rounds, including consumer products like toys, shoes, clothing, and most consumer electronics. Nearly every application for displays – smartphones, monitors, notebooks, tablets, TVs, and wearables will be hit with the 10% tariff. For the most part, the costs of the tariff will be passed along to consumers in higher prices, which will generally reduce the demand for these products. That means a net loss for the display industry, as the US represents about 25% of global demand. An industry already suffering from overcapacity will get worse.
I expect that in many cases it will be difficult to see a price increase. We know that some companies have been shipping ahead of demand in recent months, to get imports into the US before the tariff takes effect. This is likely to accelerate this month for products (like smartphones) that can be air-shipped, but by now it is too late to change anything that requires surface shipping. Most of the major TV brands, even including Chinese brands Hisense and TCL, have production in Mexico, so are likely to shift some production there. With the steep reduction in LCD panel prices over the last 18 months, I still expect to see all-time low prices for Black Friday this year despite the tariff.
One important business decision that will be partly political – what will Apple do on iPhone pricing? The new iPhone series models for 2019 will be rolled out in September, and they will be imported from China. Apple may work to ship as many as possible by air in August, but will certainly face the tariff this fall. If they charge higher prices, they risk a further reduction in demand for a product upgrade that already seems less exciting than most years. If they don’t charge higher prices, they will suffer lower margins. Either way, it will be immediately recognizable in Apple’s product launch.
Hold on tight, though. I still believe “it will get worse before it gets better.”