United States’ new president, Donald Trump, has announced several radical changes in the operations of the federal departments and how they deal with international trade. Among the other policy modifications, the increase in tariffs on goods imported from China is of great importance, as it could, in very real ways, send ripples to the smartphone industry.
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What Are Import Tariffs Anyway?
To put it simply, a tariff is a form of tax imposed on imported items collected by the government. It could either be a percentage of the item’s amount or a fixed fee. Companies importing their items from a foreign country (if there’s a tariff in place) must pay a tariff to their country’s government.
Amid growing geopolitical tensions, the United States government, under the leadership of Donald Trump, has imposed a 10% tariff on all items imported into the country from China. The government has also proposed a 25% tariff on goods imported from Mexico and Canada, which isn’t final yet (as the latter offered to increase border security).
It is important to mention that China, Mexico, and Canada accounted for 40% of the total imports into the United States this past year.
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Why Is The United States Increasing Import Tariffs?
As a part of his election campaign, Trump promised the American citizens to boost local manufacturing of goods and reduce import reliance on foreign countries. By doing this, the US government wants to directly boost its economy (as it will increase the tax revenue).
However, there’s another motive behind implementing tariffs (or at least it seems to be). By increasing the costs of imported goods, the United States government is indirectly encouraging (or pressuring) the companies that source their products from China to manufacture locally in the states.
Whether the affected companies (like TSMC) will pull back on manufacturing in China and set up plants in the United States is a discussion of the future, but the increase in tariff will surely disturb the smartphone industry’s dynamics.
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How Will The Increased Tariffs Impact The Smartphone Industry?
According to a report by ctee.com, the Taiwanese Semiconductor Manufacturing Company, commonly known as TSMC, is planning to increase the prices of its chips by up to 15% as a counter-measure to the imposed import tariff.
Although previous reports suggested a hike of 5%, a 15% increase in price isn’t something that TSMC’s clients will soak entirely. And who are TSMC’s biggest clients in the United States? The California-based tech giant Apple remains TSMC’s top customer, contributing around one-fifth to one-fourth of the chip manufacturer’s total revenue.
This shows how the two companies rely on each other: Apple for its cutting-edge A and M series chips that power its iPhones, iPads, and Macs, and TSMC for driving its revenue and growing as a global leader in the chip manufacturing industry.
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TSMC Could Pass On The Tariff To OEMs
According to another report by ChosunBiz, TSMC could hike the prices for chips that use below 7nm fabrication technology. This will, in turn, increase the cost of processors for its customers, including Apple and Samsung.
If the increase is within the companies’ limit, then the prices might not be passed on to the customers. However, a significant price increase will lead to a small portion of it being handed over to end consumers. Given that Qualcomm is also reportedly planning to increase the prices of the Snapdragon 8 Elite 2, Apple iPhones and Samsung Galaxy S devices (which rely on TSMC’s fabrication technology) could become more expensive in the United States, especially in the short term.
On Tuesday, Apple already announced a 10% tariff on products imported from China. To give you some perspective, 75% of iPhones are manufactured in China, implying that they’d cost the company more to import in the United States. If TSMC and Qualcomm decide to hike their prices, the increase in cost could also be passed on to Indian consumers. However, it’s too early to comment on it.
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