How trade wars hurt gadget makers

Honestly, if I knew everything that was involved in making hardware, I wouldn’t have started the company. When you start looking at
the lists, it’s daunting. Did you ever really think about tariffs up until recently? Was this a thing that
you tracked closely? No. Not at all. It’s been a bit of a wake-up call. Even us, like we
were watching it in the news, we weren’t really thinking about it until we got the bill, and were just, like, “All right, we have to up our costs because, you know, we
can’t just eat that stuff.” The US basically wanted to renegotiate the current trading
relationship with China, and the tariffs were the mechanism the Trump administration chose to sort of, in effect, force China
to the negotiating table. Friday, President Trump slapped a 25 percent
tariff on approximately $200 billion
worth of Chinese imports. We’ll take in well over
$100 billion a year. We never took in 10 cents
from China, not 10 cents. President says China
pays the tariff, but it’s US businesses and US
consumers who pay, correct? Yeah. I don’t disagree with that. Again, both sides, both sides, will suffer on this. Gadget makers are subject to political policy just like everybody else. Over the past year, the
United States and China have been in a trade war that involves both countries putting
tariffs on various goods. The consequence has been that
independent gadget makers who already might have
small profit margins are having to rethink
how they do business. Unlike some other aspects
of their jobs, tariffs are totally outside their control,
yet have major implications. Companies are reacting to the tariffs, and consumers might soon see the effects. (bouncy electronic music) So I’m Zolty. We are in Breakfast, which has been around about 10 years, and we are a group of
multidiscipline designers, artists, and engineers who make kind of the most high-tech,
crazy art installations that are happening in the world right now. We try to actually make one-offs. I’d say that is our specialty. It’s just not the most efficient, and it is the most costly. Breakfast creates
large-scale installations that can end up in
museums, building lobbies, or anywhere that wants to
show off inventive art. Their most recent project is Brixels. These are Brixels. Brixels are something we
came out with in October, essentially as one of our new mediums. So motor, PCB, all of that just plugs into another PCB back here, and then there’s a timing belt that spins this. This is how the new version works. So with importing stuff, what do you get? How does it come in? I mean, you’re
looking at all of this. This is actually a good
setup right over here. How many of these pieces are
getting hit with tariffs? I’d have to go check the slips, but at the end of the
day, almost everything I’m looking at is steel, aluminum, and PCB, and all of those things get tariffed. Right now, the US
puts tariffs on hundreds of billions of dollars
worth of Chinese imports. This means that if a company imports a tariffed good into the US from China, they’re going to see that tariff cost reflected kind of like a sales tax. Every product that’s made is given a very specific tariff code, and these codes form a
classification system. Raw materials and parts like steel, aluminum, and computer chips have their own codes that have tariffs placed on them when imported from China. These codes are selected somewhat randomly and are subject to change. Right now, it also means that a code for a fully assembled good that’s imported might not be tariffed, even if that complete product contains parts that would be tariffed on their own. This means the cost of production for the companies that
use these parts goes up, and they need to figure
out a way to make up that extra cost,
especially if the situation goes on longer than it already has. Zolty’s team has considered getting their supplies from the US, but the raw materials come
from China regardless. So whether it’s Zolty
or the US supplier, someone’s always going to
end up paying that tariff. I mean, this is a good example of… this was made in Brooklyn,
this was made in China, and they’re pretty much identical, but one costs half the amount, and that’s the one that comes from China. And on top of it, they have to pay the tariff to get this in here. The Brooklyn people. I mean we have to pay it the same way, but this is kind of the situation where if the whole goal is to be creating more jobs in the country, you know, if you put the tariff on this one, it’s half the price. So even paying that tariff, if we’re trying to keep our costs down it doesn’t convince us to go over here. I’ll continue to say if we can pay the person here to do it and we can make the business work,
then we would do it. But, you know, at the scale and the amounts that we have to pay for this stuff, we wouldn’t be able to sell these things. Technology’s running our lives. You know, it’s obviously
our phones and tablets, and it’s governing everything around us, our data, our houses, our communication. But most of us don’t
understand how technology works, and we can’t be creative with it. We can’t be creative with electronics, and so littleBits was
kind of an answer to that. Ayah founded
littleBits in 2011. The company makes magnetic modular pieces that help kids learn about engineering. littleBits are a product that
could be subject to tariffs so their VP of operations, Diana Pincus, monitors the situation closely. Luckily for us, in the
first round, no impact at all, and only in the second and third did we start having a few parts that we were bringing
in really get impacted, and so we don’t really know how to predict what’s coming. But
we have a few components that are impacted that
we pay the tariff on. What are those components? One, in particular, is a,
we call it a tackle box. It’s basically a plastic container that we send with some
of our larger collections for people to put their product in. So it’s a piece of plastic. In the third round, that was impacted. That’s so random, and it’s funny because it’s maybe like the least technological thing that
you guys actually ship. Yes, exactly. In the history of littleBits, we had been buying our bits from China and then doing final assembly in the US. We actually moved that
full assembly to China right toward the beginning
of my tenure here. So before any of these tariffs, but even with this new scenario, we would still make that same decision because it’s still cheaper
for us in the long run. Tariffs are complicated, as are the political circumstances
that caused them most recently. Brad Setzer is a senior fellow
for international economics at the Council on
Foreign Relations who has studied and monitored the situation. From what I understand,
if you build a phone, let’s say, completely in
China, it isn’t taxed? It doesn’t have a tariff.
Whereas if I import the chips or the PCBs or whatever into the US and then build my phone here, I’m going to be paying tariffs
on those specific parts. That is now basically true. That’s a consequence of the decisions that the Trump administration made. In broad terms, the US imports a little over $500
billion from China. In broad terms, we in the US have put, or the Trump administration
has put, tariffs now on $250 billion of that trade. The half that was left
out without any tariffs, in general, is final consumer goods. So fully, clothes, assembled
computers, cellphones. The things which receive tariffs either at the 25 percent
rate or the 10 percent rate tend to be intermediate goods, parts. It’s a little bit arbitrary, though, and I think that’s what
you just highlighted. We, in many cases, have tariffs on imported electronic components,
but not on the final good. Does that cost
eventually get passed down to the customer, or how do companies typically make up for
that added cost to them? So a company has a choice. One choice is to raise their prices. They try to pass on the increase in cost entirely to the consumer. They run the risk of
seeing their sales fall and the consumer ends up
paying a higher price. In some cases, companies may decide, Hey, it isn’t in our interest, even though our costs have gone up, to fully pass that on to the consumer. We have competitors. Those competitors aren’t
producing in China. They’re not going to raise their price. Let’s absorb some of
the increase in our cost through reducing our profit margin. And then there will be
companies which say, Hey, I want a better
deal from my supplier. I want my supplier to cut their price. Otherwise, I will find another supplier. In which case the tariff is, to some degree, borne by the producer in, say, China. I think the empirical evidence on the last round of tariffs is that the bulk of the cost has
been borne by consumers. At this point,
the Trump administration is going to pursue tariffs if it thinks it’ll advance its goals, and us consumers, we’re going to have to deal with the consequences. The gadget makers, however, will keep on doing what they always do: churning out new products and adapting to whatever challenges come their way. For anyone maybe getting into this space or making things, making
products, whatever it might be, I think you could look
at the tariff situation like any other real business problem. I wouldn’t say that it’s so different than other things we’ve experienced in that contingencies is crucial. So like if you’re going to go and build a company on something,
you can’t expect that, you know, we live in this perfect world where you’re always
going to get the same stuff and it’s always going to be the same price and it’s always going to show up
when it’s supposed to show up. So this is kind of just one
of the bumps in the road of business, which is
you need to make sure you’re compensating for
the stuff you don’t know or don’t see coming down the pipe. My advice is: start a
company with a mission. It’s the most powerful fuel you could have for the kind of business that we’re in. I think, in general, but also particularly for the kind of business that we’re in because when things are tough and you’re having a hard
time because of tariffs or because of supply chain issues or because of a copycat or because of all sorts of things, the
mission keeps you going. And I think that there’s no better thing to advise an entrepreneur to do but to really make sure that
you’re feeling the mission. Thanks so much for
watching In the Making. If you haven’t seen all the episodes yet, make sure you go back and watch those. I’m going to be gone for a little while because I’m going to be working on my podcast Why’d You Push that Button? So make sure you check it out. It premieres for our
fourth season tomorrow anywhere you normally get your podcasts. All right, I’ll see you later. Bye!

100 thoughts on “How trade wars hurt gadget makers

  1. Thanks for tuning in to the first season of In the Making! What topics would you like to see in the future?

  2. I like this verge segment. I get to learn more about tech and business aligned.
    Can't wait to see you come back.
    I'd like for you to do more stuff about trading stocks for tech companies

  3. So it sounds like the tariffs are really designed to HURT American manufacturers and HELP China. Since the completed product wont be tar-riffed, companies will outsource their manufacturing back to China instead of importing the parts and manufacturing here. Stupid, our politicians are once again either duped fools or they have a specific agenda to hurt America, meaning they are betraying us/traitors.

  4. If they wanted to create jobs then the tariff would have been to fully finished products, but thats obviously not their goal but to protect the big companies and the consumers and true trail blazers have to pay the costs. 'Merica!

  5. It's ok, President Trump has already considered the buying power of Americans / American businesses. Most importers in America can afford to pay for these tariffs, as the money would only go to the American government account anyway. American government who would then spend these money on Americans in return.

  6. do you think if the American peoples taxes went up, and businesses taxes went down would their prices drop to help us out or would they just bank the extra cash and congratulate themselves on their higher profits? maybe there should be a little give and take in the business profits sector and maybe their customers should not have feel every bump in their road. why did phone prices keep going up pre-tariff?

  7. The American workforce has long been abandoned for China. How long will they tolerate being taken advantage of? Where then will the greedy bastards flee?

  8. I wish this article spoke about what China is doing to the US and other countries. Stealing intellectual property, not competing fairly, requiring business partners to do business in China are just a few things they do. They also have very unfavorable trade deals, so the idea of tariffs as scary as they are is meant to get China to changer their ways. The US is working to get China to put intellectual property rights into their laws so they cannot steal our tech then sell it back to us cheaper which is a double whammy. Unfortunately our choices are pay now or pay more later if we don’t deal with it.

  9. For at least 50 years Big Capital has been selling out Europeans in the name of the Holy Free Market and pocketing trillions. Today, Big Capital has rebranded itself as Woke Capital and created Bio-Leninism to fight the working class Europeans who figured out their treason.

  10. China's Belt and Road initiative is delayed, along with a slowing of China's economy and someday we'll need to reduce on our dependence on China. The real entrepreneurial opportunity isn't bourgeois tech but developing more raw material factories, steel mills/refinerys for U.S. consumer goods. How does one encourage a factory based economy from a consumer economy? I don't know, at least tariffs are getting us talking about alternatives and rethinking our relationships with other nations.

  11. The people interviewed are of course careful with their words, but you can tell that none of them are happy with the tariffs. Thanks, Ashley.. great series.

  12. Look at it this way China is stealing products and selling them to America at zero cost to them — That’s how you put us out of business and steal the future from your children – idiots — There is a NWO plan to steal the wealth of America – Research AGENDA 21 a UN PLAN —— They are secretly and in your face Spreading Communism on one end and Islam on the other – But first you must remove America — Trump Is purposely Interfering with the plan 🇺🇸🇺🇸🇺🇸🇺🇸🇺🇸🇺🇸

  13. i thought americans support american product and its people, what is wrong with paying double for the same product. stop sourcing your material from china, support local goods from raw material to finished product.

  14. I work for an electric motor shop. One of our manufacturers we sale/represent is Made and headquartered in China. They were affected by the tariff and they increased prices by putting a tariff charge on the invoice. This means that we have to spend more money as a company to get the same product as before. As a result we had to raise prices to our customers. The good thing is the motor manufacturer in question has vowed to lower prices again once the trade war ends. But that doesn’t change the fact that at the end of the day the consumer is the one who pays for the tariff.

  15. Those things are cheaper in China, because of cheap labour. If you want to stop immigrants from coming to the US, you make sure people are paid a fair living wage in their own country.

    Even in the US that's a problem, just imagine how low the wages are in China.

  16. If we as Americans keep purchasing products and materials from overseas then those companies that are overseas gets the money. You can't complain when buying cheap products from China and then wanting American companies to succeed.

  17. So Basically Democrats want to allow China continue making nearly EVERYTHING? Something must change, America must make things again….

  18. The CEOs compensation Will go up the stockholders dividends will increase quality of the product will decrease manufacturing moves overseas and employees will be laid off, sound familiar

  19. In theory this might move production outside China to Indonesia or Phillipines. From republicans this is interesting as tariff could be considered as an indirect TAX by the government..

  20. Made In America obviously has its consequences due to the high cost of living. Trump is giving us what we wanted so there's that but societies habits will be tragic especially with the recession creeping around the corner.

  21. Glad that they didn’t get taxes and tariffs confused.
    Tariffs is takes but taxes is not tariffs.

    Aka tariffs is a type of taxes but is different than sales tax

  22. This is a lie, the tariffs are just a way to make up for the tax shortfall after trumps tax breaks for billionaires and corporations and idiots like this fall for it!

  23. "We have to up our costs, we can't eat that". Said the man who gets paid millions of dollars more than his staff, what he meant was: "We would have to reduce executive salaries or bonuses if we keep the price of our product the same, so we'll pass the costs to the consumer".

  24. It’s a economic law, who pays the tariff depends on who needs the sale more. So for IPhones , for sure consumers will pay for the tariff, but for small start ups who needs customer to buy their products more, they will have to pay

  25. is this the start of inflation ? I mean your expensive goes up but your salary remains the same.
    Please leave a comment

  26. Buy raw goods from other countries like the US or not china. Trump is trying to help us break even on trade. Yes it will hurt at first,, however businesses will find a cheaper way if this continues, so do it now. China is trying to wait us out!!

  27. India should do what China did with Schenzhen and create a manufacturing zone then there would be competition. You can argue that, right now, Google has a monopoly on phone os, China has a monopoly on manufacturing. Any monopoly is bad for consumers.

  28. Trump: America will win
    Xi: China will win
    Rest of the world: Damn, we didn't vote for either of you, why our Huawei phone included in the ban? We suffer

  29. I found the solution for American companies. Relocate your factory to Mexico, assemble the good there, and then import it to the US tax free.

  30. Wait a minute. So, if U.S. company buy completed goods (let's say robots) from China & sell in U.S. (sold as made in China) it's not tariffs, but if they buy components & assemble them here in U.S. (sold as made in U.S.), it's subject to the higher tariffs?? Thought Trump policy was trying to help boost "made in USA" goods…

  31. People argues that the tariff would force supply chain to move out of China.
    But NOPE, I don't see that happening.
    No other country has the scale of producing all the products(tens of thousands from toys to containership from oven to machines) you see,millions of engineers、sufficient amount of electricity for mass production 、capacity of ports、excellent traffic infrastructure such as highway network、a single domestic market which can keep the price down.
    The only one that can be competative to China is India but it'll take them years to catch up, after all it took China 40yrs to become the world-factory.

  32. Trumps tariffs are not working did anyone watch this whole video????? US loosing China still on top. So the tariffs are not working.

  33. ouuu nooo…. some one should start produce they own products… and it is not China… 😀 In Europe we all the time had tax for imported stuff and businesses not fall down 😀

  34. That's pretty much how trump said mexico will pay for thr wall…by raising tariffs on mexican products crossing the border…..but mexico can just raise the prices of their products instead….which means in the bigger picture: the US citizens will end up paying for it

  35. So the tax isn't high enough to make it cost effective to do it here, just high enough to increase prices to consumers. Art of the deal.

  36. Thanks verge !! this was really important to understand, if a country apply tariffs it only hurts it's own hardware manufacturer. I try explaining this to people but they don't understand. It's so tuff for companies making electronics hardware. i remember waiting days and days for parts i ordered and also over paid for then by 40% because india has so much tariff on every thing.

  37. Only thing I got out of this video was a product called little bits I'm going to have to buy some for my kids

  38. $49.95 for a “tackle box”…..!!!! The box is made for less that $5 in China, FACT. If this isn’t squeezing CONSUMERS and feeding the pockets of Western “CEOs”…….

  39. Great video Ashley, thanks for highlighting some details on this trade stuff. The idea that parts are tariffed but final assembled products are not is completely mind blowing, how is that strategy going to help our North American businesses.

  40. [email protected] LittleBits selling part kits I could get for 30 bucks on digikey for $200. Yeah I think they'll survive, tariffs and all.

    The only real takeaway I got from this video is that the tariffs arent high enough.

  41. 6:00 I wander how much tariffs added to cost of plastic container they want to sell at $50. I bet (my apologies) in single % digits of price.

  42. Americans can maybe buy less? Pay more for goods made by Americans? How is it bad for your own future? Just think China will not be satisfied with OEM for American forever. Soon you will be Chinese's slaveries as you have done to them. Just try to be less lazy and greedy, please.

  43. Um… China's government killed American aluminum (on purpose) so you HAVE to keep buying from China… don't we see the pattern?

  44. Trade ware will protect interlectral property which is far more important than cheap supply chain and cheap goods in short term

  45. Just going to put this out there, tariffs do not work.

    I will never understand why trump is doing it as he is also from the historically free trade party, how has he managed to get so high up there!

  46. so american makers just need to setup shop in "america town" in china and get better health insurance rates as an added bonus? plus simple access to the russian markets to boot

  47. Someone should stand up and US is standing up for themselves, otherwise China will be making everything and in no time WE WILL BE LIVING IN CAPSULES OUR WHOLE LIFE 🤷‍♂️

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