Your favorite technology products could be about to get more expensive. Here you can read why
I am not an economist and my financial acumen is, as my partner would tell you, suspect. But I understand one thing fundamentally: if you charge companies more to make or ship products, they won’t absorb those extra costs and instead serve them to you like so much overcooked porridge.
Now that former President Donald Trump has been officially elected in the US and will take power on January 20, he will certainly fulfill an important campaign promise: import tariffs between 12% and 60%. On the fringe is China, which is expected to suffer the most draconian tariff structure at 60%.
There are no precise figures on how much technology is produced in China and other countries, but the fact is that most of the gadgets you love and use are not made in the United States.
Amazon for example reportedly makes most of its Fire and Kindle products in China. Apple produces most of its iPhones in China, but has shifted some of its production other Apple items to India and Vietnam. In the same way, Google produces Pixels and other devices in China, Vietnam, Taiwan and India. Lenovo produces most of its laptops in China.
The hard truth
I have no problem with products being produced where it is most efficient and cost effective. I know labor is cheaper and proximity to components is better outside the US.
It is also likely that regulations in China and Vietnam, for example, will be somewhat more relaxed, although US companies have tried in recent years forcing their Chinese counterparts to conform to U.S. manufacturing standards for things like safety. I want everyone to be safe at work and paid a fair living wage, but I also appreciate the technical equipment I can still afford. It would be great if we could have both, but that might be unrealistic.
The purpose of tariffs is to resolve trade disruptions. The US does indeed have a trade deficit. On Election Day in the US, the Census Bureau released its figures U.S. International Trade in Goods and Services Report for September 2024 (PDF). The top headline was that the trade deficit rose by $13.6 billion to a total of $84.4 billion.
Another tariff goal is to encourage companies to move production back to the US Brooking’s Institute lags far behind Chinawhere manufacturing accounts for 27% of the country’s output, compared to just 12% in the US. And it is well known that the majority of technology production, including semiconductors, still takes place outside the US.
Rates don’t do what you think they do
It seems unlikely that tariffs will change this equation any time soon. In fact, tariffs have historically had the opposite effect of the intended effect. According to the Cato Institute:
“Recent empirical evidence indicates that the new US tariffs imposed in 2018 and 2019 were almost fully passed on to US consumers, resulting in higher prices and reduced export growth.”
Again, the tariffs imposed on companies are passed on to us, and that means they show up in the form of higher prices for the tech products we buy every day. The Cato Institute adds that tariffs lead to increasing protectionism (protecting us against unwanted foreign competition) and corruption.
It is possible that the tech giants will take a different path and accelerate plans – if they have any – to move production to the US. This measure, of course, could mean higher costs just for building out infrastructure and paying American workers higher wages for the same work they get from Chinese workers at a fraction of the cost.
Do we have a plan?
I asked Google, Amazon, Lenovo and Apple how they plan to handle these potential tariffs. Would they just eat the extra costs or pass them on to the consumer? Amazon had no comment. At the time of writing, the others have not yet responded.
I doubt they’ll absorb the cost of the tariffs, but don’t expect any of them to willingly admit that prices for, say, your next iPhone, future laptop, or new Kindle are going to rise.
However, if these rates are implemented early next year, the costs will have to go somewhere. Even though it forces companies to move production back to the US in the long term, in the short term it all means higher costs for technology companies and more expensive technology equipment for consumers.
On the other hand, we have a Black Friday ahead of us. It may make sense to stock up on those gadgets now.