If TVs get hit with a 10% tariff as part of the Trump administration’s next round of $200 billion of product affected, what would be the likely impact? Because of the steep declines in LCD TV panel prices in the last twelve months, a 10% tariff would merely slow down the price declines for TVs in the 2018 holiday season. The figure below shows the pattern of TV panel prices since 2015; overall prices are down nearly 40% Y/Y in July 2018.
TV Panel Prices 2015-current
The chart below shows the imports of TVs by category and country in 2017. More than ½ of the China TV imports are in the two middle size categories, 30-35” and 35”-44”. In the smaller of those categories (effectively representing 32” TV), the average price of a TV imported from China was $127. In the larger category (covering 40” and 43” TV) the average price was $208.
Source: US ITC Database, DSCC Analysis
Now let’s consider 32” TV as an example, comparing a sale in 2018 with a 10% tariff with a sale in July 2017, 32” panel prices were $72. So with a TV price of $127, there was only $55 left for all the TV electronics, packaging and shipping (and profit, if there was any). In July 2018, 32” TV panel prices have fallen to $46. If we add back the $55 costs for TV electronics, packaging and shipping we get $101. Even with a 10% tariff, the cost only comes to $111, still 13% lower than last years’ price of $127.
The case of 40” shows an even more favorable scenario. The 40” panel price started declining in July 2017, but in June 2017 the price was $139. With an average TV price of $208, this leaves only $69 for TV electronics, packaging, and shipping. Current 40” panel prices are down to $73, so with $69 for the rest of the TV, and another $14 for the tariff, the full cost would be only $156, fully 25% lower than 2017.
All of this does not mean that a 10% tariff imposed on TVs would be painless or would not have an impact on the US TV market. Without the tariff, prices could be even lower on TVs this fall. The larger impact, though, would likely be on the competitive dynamics. Brands like Samsung that import from countries other than China will benefit from the lower panel prices and not have to pay the tariff penalty, and the tariff is likely to encourage major brands to shift production to Mexico.
TV imports from Vietnam totaled 1.7 million in 2017, with most or all of those coming from Samsung brand. Samsung imported 32” TVs in 2017 at an average price of $154. With the $26 reduction in 32” panel price, the cost of these imports could be reduced to $128. While the Samsung cost is still higher than that for China imports, the gap is only $17 or 13%, down from $27 or 18%. The impact is yet larger for 40”, which Samsung imported in 2017 at an average price of $231. With the $66 reduction in panel prices in the last year, these could be imported at a cost of $165, only $9 or 6% higher than the China imports.
This analysis oversimplifies the economics, as it misses many factors in the supply chain calculations. TV imports from China are already subject to a 3.9% tariff; the 10% tariff penalty threatened by President Trump would bring this to a total of 13.9%. In each product category, there are a range of brands and product features that would have prices higher and lower than the average.
Still, it should be clear that a 10% tariff imposed on China imports would benefit brands that import from Mexico or Vietnam. Wherever the imports come from, though, US TV prices in 2018 should be lower than last year.
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