How Trump’s Trade War Could Break Your PC Budget and Stifle Innovation

The United States is officially in the midst of a trade war with China, as President Donald J. Trump and his administration threaten to enforce tariffs on $34 billion of Chinese goods, many of which can be found in consumer electronics and their components.

Those tariffs went into effect at 12:01 am July 6, 2018 and include a variety of transistors and capacitors, printed circuit boards, flat panel displays and LEDs, among hundreds of other items. In theory, this could raise prices both for American companies using these parts and for consumers, who may have to pay more for computers, phones, components and more.

“It would not be good for the market in general (if the tariffs cause prices to rise)” said Eddy Piedra, marketing manager at Miami-based boutique system builder Origin PC. Piedra told Tom’s Hardware. “It would be like another cryptocurrency scenario, but industry-wide. Which is not good for anyone. We don’t like that and we hope it doesn’t happen.”

But businesses are still in the wait-and-see stage.

“As far as what’s happening with the trade war, which we’re well aware of… I personally haven’t seen any direct — as of yet, anyway — any direct effect yet,” Piedra said. “And it remains to be seen exactly how it will impact us, however it may turn out. Because I have yet to hear anything or see anything internally.”

Piedra pointed out that besides their chassis, all of the components are from name brands, some of which may be imported.

Analysts, however, are unsure of the tariffs’ immediate impact with the few details that are currently available. But if they hit somewhere, it will likely be in pre-built systems.

“The impact will be mixed in terms of direct impact…” Stephen Baker, vice president, industry analysis at NPD, told Tom’s Hardware. “In general, tariffs on finished goods will hit the consumer the hardest since many tech products are assembled in China. Any other direct product impacts, in terms of costs to the supply chain or rising costs of components, are likely to be passed on through the supply chain as much as possible, these are mostly unnoticed since they are more likely to be part of the regular ebb and flow of costs that occur (such as costs of DRAM).”

The most difficult issue, Baker suggested, is what it will cost for companies to come up with ways to avoid tariffs and making “less economically advantageous decisions” in order to keep supply up. Additionally, the enforcement of these tariffs could also hurt innovation.

“Other examples might be joint ventures in fabs to create new semiconductor technologies or develop new storage concepts,” he said. “The impact of the inability, or added cost of those activities strike at the heart of the innovation culture of technology.”

But for the most part, it’s about making tech as we know it.

“It seems that the most obvious impact will be on supply chain costs as many tech companies rely on Chinese manufacturing,” analyst Carolina Milanesi of Creative Strategies said. But there’s more at stake, because the “when it comes to tech US and China are not only the largest markets but also the two largest power-houses when it comes to 5G and AI.”

The White House Communications Office and major U.S. tech companies, including Dell and HP, have not responded to requests for comment. We will update this story if and when they get back to us. An Intel spokesperson declined to comment.

Smaller tech companies are still unsure of what the impact of these tariffs will be. Piedra’s hope is that if prices go up, customers won’t be heavily affected.

“Before we pass it down to the customer, we do everything we can to obviously mitigate that. Because it’s in our best interest to offer the best value possible to our customers,” he said. He suggested they would have in-depth talks with suppliers in an effort to keep prices low, referencing deals during recent sky-high GPU prices during the cryptocurrency mining boom.

“We have not yet seen a price increase due to the tariffs, but quite a bit will develop in the coming days and weeks…” Jon Bach, founder and president of Kent, Wash.-based Puget Systems, which makes custom workstations. “A change in price could change what component earns a place into our product line, or where we source it from. I expect that we will be able to mitigate pricing increases for many items in that way. Other items, such as processors and SSDs, won’t be as straight-forward. We will work closely with manufacturers and distribution partners to do everything possible to keep price increases from hitting our end users.”

There may be ways around the tariffs. While Origin is based in Miami, it does have a facility in Australia, but has yet to expand to Europe.

But Origin isn’t worried about losing customers to international builders. Because for boutique systems, at least, shipping and insurance can be costly, Piedra said.

“If, for example, memory and hard drives and all that, the prices skyrocketed for whatever reason, industry-wide I still wouldn’t feel that our customers here, especially in North America would be like ‘oh, I’m gonna start buying from Europe now because it’s cheaper.’ Well it may be cheaper but the shipping fees, support, there’s so many other variables involved… I hope it doesn’t come down to that, to be honest.”

Bach shared fears that price increases could be industry-wide:

“If we do find price increases we are unable to avoid, it would have a negative effect across the PC industry — everyone would be affected equally,” he said. “A price increase would cause many consumers to delay their next purchase, which would negatively impact the economy as a whole. None of us wants that!”

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