One of President Trump’s promises leading up to taking his oath of office was to put “America First”. By this, he means rewarding American companies that keep or bring back manufacturing to the US, by providing tax incentives and other benefits, and punishing non-compliant companies, by imposing heavy tariffs on imported goods. While most of his focus has been on auto manufacturers so far, that won’t be the end of his efforts.
One potential target of Trump’s wrath will be the video game industry. All three of the major console companies manufacture their consoles in Asia, predominantly China. The same is true for most computers and computer components, as well as mobile phones and tablets. Not even your TV and Blu-ray player is safe from these potential tariffs.
The goals of these tariffs is to force companies that manufacture overseas to bring that manufacturing into the US. However, history has shown that not to be the case. What is almost assuredly going to happen is that these companies will look at those tariffs, add them to the current cost of production and realize it is still cheaper than moving manufacturing to the US. And all of that cost increase will be passed down to the consumer.
Don’t believe me? Take a look at the state of consumer electronics in Brazil. Brazil has some completely insane tariffs and taxes on computers and video games. There, consoles run nearly double the US price of the same because console companies will not eat the cost of the tariffs. These high prices have led to a consumer electronics market years behind the US and an extensive piracy network throughout the country.
If you want more evidence of consumer goods companies passing on the price of heavy taxes to consumers, look no further than Philadelphia’s new soda tax.
Chuck Andrews picked up a $1.77 gallon jug of tea, got home and looked at his receipt.
“When I read the receipt I’m like, ‘Wait a minute. I paid more in tax than I did for the product,'” Andrews said.
The tax on the $1.77 gallon of tea was $1.92 cents.
If anyone thinks that video game and electronics manufacturers will simply eat the cost of the tariff or move manufacturing to the US, they are kidding themselves. That isn’t how business works, especially if the tariff eats all the profits they are currently making. The profit margins on game hardware is already slim and a 10% or more increase will likely eliminate it completely, unless the increase is passed on to the end user. That will likely cause a decrease the overall unit sales.
Even if these companies bring manufacturing to the US, we will still see an increase in price as the labor cost is higher here and they will have to build out the infrastructure necessary to even start. There is just no way that Trump’s “America First” policy will not hit our wallets.