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US tariffs on electronic parts from China could increase consumer prices

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US tariffs on electronic parts from China could increase consumer prices

The latest version of U.S. tariffs on products made in China takes aim at semiconductors and memory chips — a move that could affect the prices of goods that U.S. consumers buy, experts said.

The Trump administration unveiled two separate lists of tariffs June 15 targeting Chinese imports valued at $50 billion, stemming from a U.S. investigation that found China improperly required the forced transfer of intellectual property from U.S. companies in order to do business in the country.

On a newly proposed tariff list, the U.S. is targeting a total of 284 Chinese products, including many components used in consumer electronics, which could be subject to tariffs after a review period, the Office of the U.S. Trade Representative, or USTR, said June 15. The U.S. also released a separate revised list of 818 categories of imported Chinese goods that will face a fresh duty of 25% starting July 6. That list was pared back from a tariff list released in April.

In retaliation, Chinese officials said they would impose tariffs on 545 U.S.-made products starting July 6. Items on that list, which range from medical supplies to oil, will face an import tax of 25%.

The new U.S. tariffs leave out many finished consumer products. In April, U.S. officials said they planned to tax Chinese-made appliances including televisions and dishwashers. Those items were left off of the lists released June 15.

But U.S. businesses and consumers could still feel the impact of the tariffs because many items, especially those on the new tariff list requiring additional review before being implemented, play a key role in U.S.-produced consumer products, Johan Gott, a principal at A.T. Kearney's Private Equity and Mergers & Acquisitions Practices, said in an interview with S&P Global Market Intelligence.

"Many of the consumer goods products have been removed and were replaced by products that are more industrial in nature than consumer-facing," he said in a telephone interview. "A lot of these products are inputs into [consumer] products."

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Under the new set of proposed tariffs, memory chips, processors and other components used in electronic devices could be subject to tariffs. Some other products, such as motorcycles and thermometers, could also face new import taxes.

U.S. buyers imported about $1.30 billion worth of processors and controllers for integrated circuits from China during the 12 months ended April 30, according to data from Panjiva. Chinese-made memory chips sent to the U.S., meanwhile, accounted for $887.5 million during the same period.

Finding alternative sources for those electronic components would be difficult for U.S. manufacturers if the U.S. does impose tariffs, said Chris Rogers, a research analyst at Panjiva Research, a data company owned by S&P Global Market Intelligence.

Unlike the items the U.S. targeted on the original tariff list in April, companies are much more reliant on Chinese producers for electronic components, and U.S. manufacturers do not have the capacity to make up the difference in the near term, he said.

"Anyone that's making high-quality electronics in the U.S. is facing the fact that they're going to have to pay 25% more for their raw components," Rogers said in a telephone interview.

Trade groups representing technology developers, manufacturers and retailers pushed back on the proposed tariffs. Ed Black, president and CEO of the Computer and Communications Industry Association, said in a statement that the proposed tariffs would hurt business within the U.S.

"These tariffs may be aimed at China, but they will result in collateral damage that targets U.S. companies and consumers," Black said. The group's members include companies in the information technology, computer and telecommunications industries.

The Consumer Technology Association, meanwhile, said the proposed tariffs could harm consumers "by increasing the cost of goods that people use every day." The group represents companies in different parts of the consumer electronics supply chain, including retailers.

Walmart Inc. and Target Corp., both major sellers of consumer electronics, declined to comment on the tariff proposals.

Televisions, appliances off tariff list

While plenty of parts that go into making consumer electronics could face tariffs after the review period, the U.S. removed some finished consumer electronics from its original April tariff list--something retailers claimed as a big win from their lobbying efforts to have finished consumer product imports removed from the list.

Televisions and video monitors, for example, will not be subject to tariffs July 6 despite being on the original list. Those two items, of any consumer product on the original list, would have been the "biggest section for consumer impact," said David French, senior vice president of government relations at the National Retail Federation and executive director of the National Council of Chain Restaurants —a division of NRF — in an interview.

Flat-panel screen televisions larger than 34.29 centimeters with included media players had a total import value of $4.03 billion in the 12 months ended April 30, according to data compiled by Panjiva Research. Color video monitors with a flat panel screen and video display larger than 34.29 centimeters that do not include media players formed another large category at an import value of $363 million in the 12 months ended April 30.

Large appliances, including dishwashing machines and dryers, are also off the final tariff list.

Still, some finished consumer products are on the targeted tariff list being imposed July 6.

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Light-emitting diodes, a category that includes Christmas lights, will be subject to the 25% tariff on July 6. During the 12 months ended April 30, sales of Chinese-made lights represented $653.9 million, or 44.8%, of the import value for light-emitting diodes imported to the U.S., according to Panjiva.

Automatic thermostat imports are also set to face the 25% tariff. The U.S. imported $435.8 million worth of the thermostats, or just under half of its total import value, from China. Smaller categories subject to tariffs include water coolers, water dispensers, gardening and hand tools and aquarium filters, French said.

Even with the largest consumer product categories — appliances and televisions — absent from the final tariffs list, there will still likely be a larger drag to the consumer sector than the cost of Christmas lights or thermostats as the tit-for-tat trade conflict escalates, French said.

"Let me take this out of specific products and look at the big picture," he said. "The U.S. will probably retaliate to China's retaliation, and we're watching what industries and products that's going to include."