Trump’s China tariffs will hit small device makers hardest

The day after the Super Bowl, ZapperBox quietly raised the price on Amazon of its over-the-air DVR.

ZapperBox offers one of the best means of recording local channels from an antenna, and had been charging $275 for its flagship model. While the price hasn’t changed on ZapperBox’s website, it now costs $300 on Amazon. Gopal Miglani, ZapperBox’s founder and president, says he’s compensating for President Donald Trump’s 10% tariff on goods from China, which took effect on February 10.

“We already moved manufacturing to Taiwan for the next lot and it costs much more there,” Miglani tells Fast Company via email. “Even if the 10% tariff is rescinded, we cannot go back to China. All these changes [are] very expensive.”

For big tech companies like Apple and Amazon, the current tariffs may not move the needle much. Experts say those companies have lots of levers they can pull to avoid raising prices, at least if the tariffs don’t increase from here. The larger impact will be on smaller companies like ZapperBox, which will have to make tougher decisions about which costs to absorb and which ones to pass on.

“It’s too risky”

Matt Ronge, the cofounder and CEO of AstroPad, is also contemplating price hikes. AstroPad makes a range of gadgets for creative workers, including a wireless dongle that turns spare iPads or Macs into secondary computer displays and a combination Apple Pencil tip and iPad screen cover that feel more like writing on paper.

While AstroPad is also looking into moving some manufacturing to other countries such as Vietnam, it consistently sees higher quality and lower prices from China, where all of its products are currently manufactured. The factories and supply chains for U.S. production aren’t yet mature enough, Ronge says.

“We are really trying not to raise prices if we can help it,” Ronge says via email. “First we are looking for changes we can make that won’t affect product quality, like changing packaging. Only if we can’t make that work will we look at raising prices.”

The bigger impact, Ronge says, will be on AstroPad’s future product plans. He’s operating on the assumption that tariff wars will only continue to escalate, which means the company must be choosier about what it brings to market. Ronge believes other small device makers will face similar dilemmas.

“Sadly some more experimental and innovative consumer electronics products won’t make it to market in this environment. It’s too risky,” he says.

Levers to pull

For larger tech companies, the outlook is murkier. While price hikes are possible, device makers may have an easier time shifting production outside of China or absorbing the costs instead of passing them on, especially if most of their money is made after the sale.

Executives from Roku, for instance, said on an earnings call this week that tariffs wouldn’t have any material impact on its business. Last year, only 14% of its revenues came from device sales, with the rest coming from “platform” activities, such as ads and subscriptions.

“From a device perspective any impact on our gross margin related to tariffs, we believe, would be immaterial, and we don’t expect any impact on the platform revenue side of the business,” Roku CFO Dan Jedda said.

Ted Malone, a former senior product manager on Amazon’s Fire TV business and former vice president of TiVo’s consumer business, says larger companies may have other levers to pull as well. Amazon, for instance, could put more promotional emphasis on higher-end 4K streaming players instead of HD models with slimmer profit margins.

“They can shift demand simply by shifting their promotions for what goes on sale for Prime Day, or whatever,” he says.

Device makers may also have stocked up inventory in anticipation of new tariffs under the Trump administration, which may explain why prices haven’t immediately increased. Cori Masters, a senior research analyst at Gartner, refers to this as “inventory buffering,” and says it’s one strategy companies can use to at least delay price hikes.

“Based on inventory buffering, they could choose to wait to pass through pricing until they’ve completed that inventory,” Masters says.

In the meantime, device makers have already been finding ways to move more production out of China in response to previous tariffs. Trump had imposed tariffs on steel and aluminum (among other things) from outside the U.S. in 2018, and the Biden administration increased them for China last year. A Gartner survey last year found that 80% of companies had executed a “China-Plus-One” strategy that emphasizes more diverse supply chains.

“They’re already making movements to diversify into a more regionalized or near-shoring type of strategy,” Masters says.

Malone notes that such diversification won’t be easy for everyone.

“For smaller manufacturers who don’t have that luxury to have six lines in Shenzhen, and three lines in Mexico, and four lines in Cork, Ireland, for people that don’t have the ability to distribute manufacturing like that, I think it’s a much bigger challenge.”

Even device makers that primarily look beyond China may have trouble avoiding tariffs entirely. Nirav Patel, the founder and CEO of sustainable laptop maker Framework, says via email that while its laptops and mainboards are made in Taiwan, it relies on mainland China to produce the modules that users can install to expand functionality.

“[W]e are taking this into account for future module pricing for U.S. customers in the Framework Marketplace as we also continue to diversify our supply base,” he says.

More dire scenarios

Even with work-arounds, some amount of price hiking seems inevitable, even for larger companies.

CTA, a tech industry trade group, points out that 80% of smartphones come from China, and the average retail price is $1,000 for U.S. consumers. Even if consumers don’t pay extra up front, the group suggests that consumers may eventually absorb the costs through higher service fees from wireless carriers, who subsidize phones in exchange for long-term commitments.

CTA has pointed to gloomier outcomes as well, on the assumption that 10% tariffs are just the start. Using hypothetical 60% to 100% tariffs on goods from China and 10% to 20% tariffs on goods from elsewhere, a CTA study estimates price hikes of 26% to 37% for phones, 46% to 68% for laptops and tablets, and 40% to 58% for game consoles.

Part of what makes the actual impact of tariffs—when they’ll result in higher prices, and by how much—is that no one knows what those tariffs will actually be a few weeks or a few months from now.

“Trump had threatened up to 60% tariffs on China,” ZapperBox’s Gopal Miglani says. “And this kind of whiplash is untenable.”

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