Many of today’s consumer electronics are currently manufactured in China, and video game consoles are no exception, with an expected 96% of those manufactured expected to come from the region in 2018. That figure comes from a joint letter written up by Nintendo of America, Sony Interactive Entertainment, and Microsoft, where the companies comment on the proposed 25% income tariff on video game console importing.
Here are the companies’ chief points:
In particular, tariffs on video game consoles would:
- Injure consumers, video game developers, retailers and console manufacturers;
- Put thousands of high-value, rewarding U.S. jobs at risk; and
- Stifle innovation in our industry and beyond.
While we appreciate the Administration’s efforts to protect U.S. intellectual property and preserve U.S. high-tech leadership, the disproportionate harm caused by these tariffs to U.S. consumers and businesses will undermine—not advance—these goals. Accordingly, we respectfully request that the Administration remove HTSUS subheading 9504.50.00, covering video game consoles, from the final list of tariffs, and thus refrain from applying tariffs on these products.
The companies also address the prospect of moving their manufacturing elsewhere to avoid the tariff:
The video game console supply chain has developed in China over many years of investment by our companies and our partners. It would cause significant supply chain disruption to shift sourcing entirely to the United States or a third country, and it would increase costs—even beyond the cost of the proposed tariffs—on products that are already manufactured under tight margin conditions. Each video game console comprises dozens of complex components sourced from multiple countries. A change in even a single supplier must be vetted carefully to mitigate risks of product quality, unreliability and consumer safety issues. Tariffs would significantly disrupt our companies’ businesses and add significant costs that would depress sales of video game consoles and the games and services that drive the profitability of this market segment.
They also bring up the ripple effect rising console prices could have on smaller businesses that rely on game sales, as well as the retailers who stock the hardware. Given the fact Microsoft and Sony are about to enter a new generation of hardware, it seems especially pressing for those two companies to avoid such a scenario.
Finally, the paper addresses how there are few successful competing Chinese video game consoles out there, and that current consoles are “relatively complex types of equipment, so the
amount of effort and cost required to manufacture infringing or illegitimate products would not be justified by potential returns.”
Be sure to give the letter a read for a deeper dive into the companies’ points.