What will the impact of prospective -- and possibly impending -- U.S. tariffs be on audio gear?

[Bruce Morgen]

Will such tariffs manifest as a humongous sales tax on purchases from China-based vendors if/when actually enacted? How about the many North American and European manufacturers that are currently and entirely dependent on Chinese manufacturing and assembly services to keep prices within reach of less-than-prosperous "entry-level" audio enthusiasts? Is it possible we're about to witness the end ofor adequate and readily affordable audio gear in general?

 

[VMAT4]

Yep.

 

[a4eaudio]

I heard from a very trustworthy source that:
- China will pay the tariffs
- Prices won't go up
- Tariff revenue will significantly reduce the federal deficit and we will get tax breaks

With the increase in disposable income from the tax cuts and no increase in prices, we should have a golden age of audio enjoyment.

 

[JPA]

I heard from a very trustworthy source that:
- China will pay the tariffs
- Prices won't go up
- Tariff revenue will significantly reduce the federal deficit and we will get tax breaks

With the increase in disposable income from the tax cuts and no increase in prices, we should have a golden age of audio enjoyment.

And pigs will sprout wings and fly.

 

[kemmler3D]

Jokes aside an X% increase in tariffs probably means an X% increase in retail prices on certain things, as brands will want to keep their COGS and gross margins in balance after their costs go up, the cost is simply passed on as a multiple. The impact on consumers will be at least 2x what's collected in tax revenue for electronics, probably more like 3-4x.

Now:

Chinese amp wholesale cost ~$50
Retail MSRP ~$200 - 75% margins

After:

Chinese amp wholesale cost ~$50
20% tariff: $10
Retail MSRP $240 - 75% margins

Again joking aside, exporters only "pay" tariffs to the extent that 1) their governments impose export tariffs, which they don't typically or 2) they face competition from comparable manufacturers in other countries that now "look" cheaper after the tariffs, and so are forced to lower their prices to absorb the cost of the import tariff paid by their customers.

As we know there is not a ton of like-for-like competition for Chinese audio factories outside of China at this stage, so we should not expect them to be absorbing much of it.

Source: Had moments of panic during the last time this came around as our consumers were pretty price-sensitive and our speaker product was already pretty expensive. Luckily that time there was a reprieve on consumer electronics, we'll see what happens this time.

So... if you are in the market for any audio gear that relies on imports, especially from China, I think it would be wise to buy this year and not wait.

 

[Bruce Morgen]

With the increase in disposable income from the tax cuts and no increase in prices, we should have a golden age of audio enjoyment.

This is not what happens with tariff impositions -- unless Beijing institutes compensatory government subsidies for affected Chinese manufacturers, prices will have to go up for those manufacturers to maintain the profit levels that allow them to survive and continue to design and tool up for new and improved products.

So... if you are in the market for any audio gear that relies on imports, especially from China, I think it would be wise to buy this year and not wait.

Exactly.

 

[A Surfer]

I heard from a very trustworthy source that:
- China will pay the tariffs
- Prices won't go up
- Tariff revenue will significantly reduce the federal deficit and we will get tax breaks

With the increase in disposable income from the tax cuts and no increase in prices, we should have a golden age of audio enjoyment.

Ridiculous. China is not going to pay the tariffs. That is pure fantasy.

 

[a4eaudio]

Jokes aside ...

Fine.

The effects depend on the price elasticity of demand which is related to the level of market power in an industry. As well as the availability of substitutes for inputs.

In the short run:
If firms face highly elastic demand (i.e., people's demand is very sensitive to price changes), then they have no price-setting ability and cannot pass any cost increases on to their customers. Their costs go up and profits go down.
If firms face inelastic demand (i.e., people's demand is not sensitive to price changes), then they have price-setting ability (i.e., market power) and they can pass all, or much, of the cost, on to consumers.

In the long run:
If the tariffs are mainly on China, then producers can shift to suppliers in other countries. If the tariffs are across the board, maybe they can bring production into the US. This would apply to companies like Dayton Audio whose products are made in China, Taiwan and India. But of course, Scan-speak, Seas, SB Acoustics, etc. aren't going to be producing in the US.

Note, the application of the above doesn't really matter if it is a tariff or any other thing that increases the cost of goods sold. There were large increases in supply-chain costs in 2020 and 2021 and we can see how it affected audio-related stuff at the time.

 

[A Surfer]

Price increases will always make their way into the final selling price. Wealthy people didn't get wealthy by sharing the pain.

 

[wwenze]

Looking at the price of Edifier speakers in the USA, it seems USA is being fleeced by sellers regardless.

 

[Sokel]

In EU we already have taxes for imported items from third countries,be it China or US,or...
Nothing will change here.

 

[A Surfer]

Looking at the price of Edifier speakers in the USA, it seems USA is being fleeced by sellers regardless.

Are they significantly less money elsewhere?

 

[kemmler3D]

Fine.

The effects depend on the price elasticity of demand which is related to the level of market power in an industry. As well as the availability of substitutes for inputs.

In the short run:
If firms face highly elastic demand (i.e., people's demand is very sensitive to price changes), then they have no price-setting ability and cannot pass any cost increases on to their customers. Their costs go up and profits go down.
If firms face inelastic demand (i.e., people's demand is not sensitive to price changes), then they have price-setting ability (i.e., market power) and they can pass all, or much, of the cost, on to consumers.

In the long run:
If the tariffs are mainly on China, then producers can shift to suppliers in other countries. If the tariffs are across the board, maybe they can bring production into the US. This would apply to companies like Dayton Audio whose products are made in China, Taiwan and India. But of course, Scan-speak, Seas, SB Acoustics, etc. aren't going to be producing in the US.

Note, the application of the above doesn't really matter if it is a tariff or any other thing that increases the cost of goods sold. There were large increases in supply-chain costs in 2020 and 2021 and we can see how it affected audio-related stuff at the time.

Yes, elasticity is an interesting question here, but we're talking about elasticity of demand among importers, not consumers. IME it is not that easy to find good alternatives to Chinese factories if that's where you're already sourcing, but I've been out of the game for a few years and I've heard Vietnam was making strides. We'll see.

As far as moving production in the sense of new factories coming online, I think that takes years in the best case.

Even if you can get equivalent electronics and drivers elsewhere, If your molds happen to be in China, good luck moving production in less than a year.

So like I said, I think if people have specific purchases in mind, the time is now.

 

[wwenze]

Are they significantly less money elsewhere?

In Asia and Australia, yes. Randomly picked 2 speakers, MR4 and R1280DB USA price is 50% higher than Australia. (After currency conversion to same currency)

On the flip side, Asia pays a lot more for Klipsch, Polk, Audioengine(or does it?) and basically USA-originated brands.

Well I had to specifically mention Australia for the Edifier comparison to take shipping out of the excuse.

 

[Sancus]

Jokes aside an X% increase in tariffs probably means an X% increase in retail prices on certain things, as brands will want to keep their COGS and gross margins in balance after their costs go up, the cost is simply passed on as a multiple. The impact on consumers will be at least 2x what's collected in tax revenue for electronics, probably more like 3-4x.

That's probably the best case scenario too. Tariffs that affect a significant % of vendors in the market could cause additional price increases as the reduced demand requires even higher prices to make up for lower sales numbers. And even companies less affected by tariffs may choose to raise prices to increase margins, given less price competition in the market. At the extreme case, high tariffs could force some companies out of business or to merge/consolidate with others, reducing competition.

 

[Chrispy]

I heard from a very trustworthy source that:
- China will pay the tariffs
- Prices won't go up
- Tariff revenue will significantly reduce the federal deficit and we will get tax breaks

With the increase in disposable income from the tax cuts and no increase in prices, we should have a golden age of audio enjoyment.

LOL, great post.

 

[Chrispy]

Jokes aside an X% increase in tariffs probably means an X% increase in retail prices on certain things, as brands will want to keep their COGS and gross margins in balance after their costs go up, the cost is simply passed on as a multiple. The impact on consumers will be at least 2x what's collected in tax revenue for electronics, probably more like 3-4x.

Now:

Chinese amp wholesale cost ~$50
Retail MSRP ~$200 - 75% margins

After:

Chinese amp wholesale cost ~$50
20% tariff: $10
Retail MSRP $240 - 75% margins

Again joking aside, exporters only "pay" tariffs to the extent that 1) their governments impose export tariffs, which they don't typically or 2) they face competition from comparable manufacturers in other countries that now "look" cheaper after the tariffs, and so are forced to lower their prices to absorb the cost of the import tariff paid by their customers.

As we know there is not a ton of like-for-like competition for Chinese audio factories outside of China at this stage, so we should not expect them to be absorbing much of it.

Source: Had moments of panic during the last time this came around as our consumers were pretty price-sensitive and our speaker product was already pretty expensive. Luckily that time there was a reprieve on consumer electronics, we'll see what happens this time.

So... if you are in the market for any audio gear that relies on imports, especially from China, I think it would be wise to buy this year and not wait.

More that an x increase in tariffs probably means a y increase in total price. The duty is based on an FOB or ex-factory price, so x percentage on that price wouldn't mean an x increase of total price....well, unless gouging.

 

[Somafunk]

Ridiculous. China is not going to pay the tariffs. That is pure fantasy.

I think he was taking the piss

 

[a4eaudio]

Yes, elasticity is an interesting question here, but we're talking about elasticity of demand among importers, not consumers. IME it is not that easy to find good alternatives to Chinese factories if that's where you're already sourcing, but I've been out of the game for a few years and I've heard Vietnam was making strides. We'll see.

Correct. The demand that the Chinese factory faces is very inelastic, i.e., there are not very good alternatives, thus they have market power. Thus, they will not lower their price much and the US importers will bear the tariff. (In the opposite case, with lots of alternatives to Chinese factories, the tariff would increase prices of Chinese products and importers would just switch to other countries' products. But the Chinese supplier would eat the cost so as not to lose all of its sales. This is the (incorrect) assumption of anyone who thinks that China is going to "pay" the tariffs.

As far as moving production in the sense of new factories coming online, I think that takes years in the best case.

Yes, for sure.
And this is only going to affect prices of goods into the US. So a company who sells into the US, Europe, Canada, Australia, Asia, etc. probably isn't going to close down its Chinese plant/supplier just because it is losing sales in the US. It will raise prices in the US and US consumers will pay higher prices than Europeans, Australians, etc.

 

[kemmler3D]

More that an x increase in tariffs probably means a y increase in total price. The duty is based on an FOB or ex-factory price, so x percentage on that price wouldn't mean an x increase of total price....well, unless gouging.

It depends on how brands want to manage their pricing vs. demand... the basic impulse is to try to keep your margins the same, but at the same time you may need to give up some margin to keep revenues steady, then again your competition is also raising prices, so it becomes more complex and the exact impact on any single product is ambiguous.

But the basic outcome I'd expect is that for every dollar producers pay in tariffs consumers probably pay at least that much.

I think he was taking the piss

Indeed, but some people in the US really don't know how this stuff works, and assume we can just tax Chinese factories as much as we want with impunity.