Industries like automative (and motorcycles) may be getting the attention, but music gear and even Eurorack could feel the impact of trade restrictions in the United States.
This is CDM, not the Economist, so let’s back up and review the issue but stick to the impact on makers of synthesizers, guitar pedals, and the like.
First, it’s important to note that for now, this is all talk – a threat by the Trump Administration meant to provoke rival China. Specifically, we’re talking about a the Trump Administration threat last week to impose stiff import tariffs on $200 billion in goods produced in China. But even the talk is relevant, as tensions between the superpowers can turn a threat into reality – especially if they cause the negotiations to fail.
Here’s what’s happened. Early last week, the Trump Administration threatened new tariffs on Chinese goods:
U.S., China Rattle Trade-War Sabers in Vowing Harsh Tariffs [Bloomberg]
Bloomberg immediately speculated that electronics could be hit hard. The result could be higher prices for consumers of those goods in the USA – presumably including some Chinese-made electronic music gear. CDM readers from South America, for instance, can attest to this reality – ask someone from Brazil, for instance, how expensive it is to get a popular music controller or mixer. Those tariffs hit the bottom-line cost of goods, so the penalty is passed on to the consumer, not necessarily the manufacturer (though more on that in a moment).
Then things got more specific – and interesting. The US Trade Representative (USTR) – essentially the office that both develops the President’s trade policy and represents the US on behalf of the Administration – published a list of just which Chinese goods it had in mind.
There’s a lot in that document, if you feel like reading it:
According to the USTR, this exhaustive list of products is selected based on goods that “benefit from Chinese industrial policies, including Made in China 2025.” (That in itself is a pretty striking statement – even in a western country like the USA, it’s hard to imagine that industries don’t benefit from government policies.) Then, from that list, the USTR claim they’ve removed products that would disrupt the US economy.
And then the whole lot of these products gets a proposed 25% increase in tariffs – on top of what’s already there.
The whole process of identifying this list is based on public hearings and comment. So if you’re a US citizen, you can actually participate in a public comment process if these tariffs would impact you.
And then you get into the list. The way the global trading system works is, you have a set of codes that describe specific categories of goods, to an absurd level of detail. Here, you have pages of particular kinds of steel and aluminum and machinery.
But one thing the list has a whole lot of us is electronics components: motors, batteries, but also LEDs, capacitors, diodes, transistors and the like. There are also a whole lot of machines and components used in the manufacture of electronics, from injection molding to electronics assembly.
There are also weird things, like electrical particle accelerators and nuclear power reactors, but we can forget about those.
The bottom line is, a lot of the ingredients of electronics are included under the tariffs, but then a lot of the assembled goods – including, as near as I can tell from this list, musical instruments and music and sound electronics – are excluded. Assembled TVs and (perversely) tape VCRs are taxed. But most other finished goods aren’t.
So if you thought your made-in-China pocket recorder or keyboard would be slapped with a tariff, that’s not what’s happening – not in the proposed list. In fact, it’s the made-in-the-USA gear that winds up getting more expensive, because American makers use components purchased from China.
The tech press has responded accordingly:
Gadget makers are bracing for Trump’s trade war: Trump’s tariffs could spell doom for small hardware startups [The Verge]
But maybe even more interestingly, DIY-focused site Hack-A-Day weighs in:
MAKING ELECTRONICS JUST GOT 25% MORE EXPENSIVE IN THE US
This will hurt all electronics manufacturers in the United States. For a quick example, I’m working on a project using half a million LEDs. I bought these LEDs (120 reels) two months ago for a few thousand dollars. This was a fantastic buy; half a million of the cheapest LEDs I could find on Mouser would cost seventeen thousand dollars. Sourcing from China saved thousands, and if I were to do this again, I may be hit with a 25% tariff.
Potentiometers are included. PCB components.
A 25% increase in parts costs is fairly significant. It’s eating directly into profits. And what’s strange to me is, an easy way to avoid the tariffs would be to assemble the product outside the United States, since for most product categories – as ours are in music – the components are impacted but assembled products are not.
Sourcing from China saved thousands, and if I were to do this again, I may be hit with a 25% tariff.
For now, all of this is hypothetical. And I don’t want to overstate the case here. Trade and economic instability would likely threaten boutique music gear makers far more than these kinds of tariffs. That is, those boutique synth makers might be able to work out a way around the increased tariffs, and/or adjust prices. But if a massive trade war between the US and China erupts and crashes the economy, lost demand for synths would hurt more.
I do think this illustrates two important points, however.
One, even as electronic music offers some respite from politics and headlines, the news will inevitably reach electronic music and gear. You can’t escape the news in the end.
Two, it’s more clear than ever that the world is an interconnected place. DIY music and independent boutique music gear makers have exploded thanks to both the Internet and global trade. That’s included cheap access to prototyping, cheap components and machinery – even for those makers producing in the USA. For other engineers, cheap and expanding Chinese manufacture has allowed people to become manufacturers who otherwise never would have done so.
That’s not to get into the deeper questions of how positive these trends have been, or what impacts they may have had along the way – societal, environmental, human.
But the world of 2018 sees musicians and inventors tied together across borders and distance in ways they never were before. And with that world order shifting fast, those connections are likely to change along with them, in unpredictable ways.
Okay, you’re now free to go apply some unpredictable modulation to an oscillator if all of this made your head hurt.
All comments welcome. (I’ve reached out for comment to some manufacturers; I expect an ongoing conversation here around these issues, especially as we get more news.)
Feature photo (CC-BY Paul Downey.
As discussed in comments, a GearSlutz thread points to new EU tariffs imposed on US imports, effective on June 24. See:
New import duties on US audio gear in the EU
US audio gear price increasing by 50% in Europe ?
Details of the tariffs are specified in a proposal/complaint to the World Trade Organization by the European Union last month.
This impacts two categories relevant to music and sound:
85437005: Portable battery operated electronic readers for recording and reproducing text, still image or audio file
85437006: Digital signal processing apparatus capable of connecting to a wired or wireless network for the mixing of sound
But the tariffs, at 50%, basically make it unfeasible for American makers to sell these goods in the EU. This should also give a sense of how serious a trade war could get: yes, the goal here, if you’re an American manufacturer, is actually to put you in economic jeopardy until you take political action to change your government’s policy.
The scope of that tariff as I read these harmonized codes is pretty small: it will involve portable audio recorders and mixers made in the USA. It shouldn’t apply to things like Eurorack modules or synths or guitar pedals – not in this round of tariffs, anyway. (Reading the rest of this document, you’re in deeper trouble if you’re in the aluminum or rice business, for some reason.)
It does mean bad news for manufacturers in these categories, though.