This is a question we were asked often over the last week or two. The question came from customers, our factories in China, and our own employees. The initial announcement by the Trump Administration that it would impose a 25% tariff on steel and aluminum imports sent shock waves throughout the financial markets and sparked fears of a trade wars. The tariffs were designed to strengthen the U.S. steel industry and prevent predatory pricing by foreign manufacturers. The China steel industry, for example, has engaged in a long-standing practice of producing high volumes of raw steel materials in order to achieve production efficiencies and then “dumping” or exporting the materials to the U.S. at below-market prices, making it difficult for the U.S. steel industry to compete. So, the initial tariffs were aimed, in part, at curbing this practice and leveling the playing field. These tariffs are confined to steel and aluminum raw material imports and do not apply to finished goods. Therefore, we don’t expect them to have a significant impact on the POP display business.
More recently, however, the U.S. Office of Trade Representative released a more comprehensive list of proposed tariffs on approximately 1300 China-imported items representing $50B in trade. The proposal would impose an additional 25% tariff on a wide-ranging list of items being imported from China into the U.S. Because of the sheer volume of trade and the breadth of products potentially affected, this more recent proposal has further rattled world financial markets and added to legitimate fears about the potential for impending trade wars.
So how will the proposed tariffs impact the POP display industry? To answer this question, we turned to our VP of Regulatory Affairs. After a quick scan of our organization chart, we realized we don’t have a VP of Regulatory Affairs so we took it upon ourselves to dig into Section 301 Proposed Product List to try to answer the question on our own. We’ll share what we concluded below, but if you are interested in reviewing the full list of proposed items, you can check it out here. The list begins on page 14.
Our take on the proposed list of tariffs is that you might start losing sleep if your business is built on importing products from China such as Malaria diagnostic test kits, nuclear reactors, single axle tractors, golf carts, helicopters, guns and artificial body parts. But for those of us who are manufacturers or importers of POP displays or retailers and brands that use POP displays, we expect the impact of the proposed tariffs to be mildly inflationary and largely limited to secondary effects on the industry as opposed to being a direct, frontal assault. By secondary impact, we mean that the industry could be somewhat affected, along with many other industries, by the macro impact of a potential trade war on economic growth and by a potential increase in U.S. manufacturing costs resulting from higher acquisition costs of manufacturing equipment used to fabricate POP displays domestically.
Many of the proposed tariffs apply to various types of equipment. Some retailers who source certain types of store equipment from China such as refrigerating or freezing equipment, cash registers, and bakery ovens could take a direct hit. Similarly, there are numerous items that are on the list that can potentially impact basic operations such as fork lifts, packing and wrapping equipment, weighing equipment, and industrial robots.
When it comes to domestic POP display manufacturers who purchase equipment imported from China, there could be a 25% increase in acquisition costs of equipment typically used in making POP displays such as offset printing machinery, water-jet cutting machines, lathes, lasers, injection molded plastic machines, vacuum-molding and thermoforming machines, wood working equipment such as drilling, boring, milling, planing, and molding machines, and metal working machinery such as bending, shearing, punching and grinding equipment. To the extent that domestic POP display manufacturers import raw materials from China, particularly in the categories of steel and aluminum, there may also a direct cost impact, but most of the tariffs tend to be very specific such as “stainless steel, width 600MM+, hot-rolled flat-rolled products, not in coils, w/ thickness o/10MM.”
There are a few POP display components that could be impacted by the proposed tariffs and may directly impact the business of domestic component suppliers while also possibly having an inflationary impact on the cost of POP displays. Specifically, the tariffs include items such as LED lighting, high-definition video monitors, touch screens, and mirrors that are mounted for optical use. This is not likely to impact the cost of a POP display that is imported from China with an integrated digital media player and embedded LED lighting since the display would be imported under an HTS code not impacted by the proposed tariffs. However, if your display company manufactures your displays in the U.S. but imports digital media players or LED lighting directly from China or sources these items from domestic component suppliers who import from China, it would likely increase the cost you pay for your display.
Our overall conclusion is that the proposed tariffs will not have a major direct impact on the cost of POP displays and that other industry and economic forces such as rising interest rates, increasing wages, retail capacity rationalization, and supplier consolidation are likely to have an equal of greater impact on the industry.