Millennials’ Favorite Gadgets Become Victims of Trade War
WHY YOU SHOULD CARE
Get ready to pay more for e-cigarettes, smart home devices and electric bikes when new tariffs go into effect.
By Tim Bradshaw
As the U.S. and China fire the opening shots of a trade war, tech-savvy American millennials are already being caught in the crossfire.
Looming tariffs on some of the hottest gadgets among younger consumers, from vaporizers to electric scooters and smart home devices, threaten to drive up prices starting as soon as this week.
Analysis by Flexport, which provides supply chain and freight forwarding services, has uncovered several categories of consumer products, made in China, that will face a 25 percent import tariff under the Trump administration’s proposed new rules.
Few have noticed that e-cigarettes and vaporizers from fast-growing companies such as Juul, Pax and Blu, the vast majority of which are made in Shenzhen, have been included in the latest tariff proposals because they appear on a list of import codes vaguely entitled “other machinery.”
It’s definitely a big concern for us, for companies both small and large. Regardless of what the intention was, a lot of this is going to get passed on to consumers.
Rick Kowalski, Consumer Technology Association
Electric scooters and e-bikes, which have soared in popularity over the past year thanks to app-based rental systems from the likes of Uber and Bird, will also face a 25 percent tariff if the plans go into effect.
The U.S. Trade Representative agency has insisted that last month’s expanded list of hundreds of categories of Chinese imports, valued at a total of $50 billion a year, “does not include goods commonly purchased by American consumers.”
But young consumers are angry that products particularly popular with their generation seem to have been singled out.
Tiffany Zhong, founder and chief executive of Zebra Intelligence, a market researcher focusing on teens, says the tariffs would hurt younger Americans.
“These products’ biggest customers are millennials and Gen Z. Younger folks adopt tech products much faster,” she says. “This is going to affect our generation, and it’s going to affect people who want to innovate on hardware products.”
While smartphones and televisions have so far been spared the tariffs, after lobbying from retailers and the electronics industry, the list already includes many everyday tech products, even before Trump’s threats of applying punitive duties to another $200 billion or more of Chinese imports.
The first wave of tariffs — on $34 billion of the $50 billion of goods — is set to come into force at the end of this week. It includes a range of smart home devices, a key area of investment for Silicon Valley startups as well as Apple, Amazon and Alphabet in recent years.
Affected products include smart thermostats, pioneered by Alphabet-owned Nest, and internet-connected LED lights, such as Philips Hue, many of which are manufactured in China.
The Advanced Energy Economy trade association has warned that the tariffs would have the indirect effect of pushing up utility bills, by making power-saving products such as LEDs and smart thermostats less affordable.
Other tech products facing tariffs starting this week include disk drives, battery packs and navigation devices.
Tech companies are scrambling to figure out how to respond. They must weigh the impact on demand and competitiveness of raising prices for consumers against the possible need for sharp cost-cutting — including job losses — if they have to bear the brunt of the tariffs themselves.
“It’s definitely a big concern for us, for companies both small and large,” says Rick Kowalski, analyst at the Consumer Technology Association, an industry group. “Regardless of what the intention was, a lot of this is going to get passed on to consumers or it’s going to get passed on to American businesses that purchase from these [Chinese] companies.”
He predicts that some gadget startups are “sure to go under” because of this week’s tariffs.
Even more tech companies and consumers could be hit by a second wave of tariffs on imports worth about $16 billion a year, including e-cigarettes and electric bikes. These are currently undergoing a consultation period.
“The second wave seems to have been a lot more precise on companies in the IT industry … and had more products that could directly impact consumers,” says Christian Jordan, vice president of global customs brokerage at Flexport.
Electric-powered bikes and scooters were captured under import code 8711.60.00, Flexport says, accounting for hundreds of millions of dollars’ worth of imports in the last year.
Startups such as Bird and Lime, which offer electric scooters for rent via a smartphone app, have received dollops of new venture capital investment in just the past few weeks to expand their fleets. Most of these scooters are manufactured in China by Beijing-based Segway-Ninebot, which itself is currently looking to raise a significant new round of funding.
Uber, meanwhile, is planning to expand its fleet of electric bikes after acquiring the rental service Jump.
With each scooter already costing about $500 and e-bikes even more, a 25 percent tariff could put a significant dent in these companies’ already substantial capital costs.
Jack Song, a spokesperson for Lime, says the company is doing “deep research” into the situation.
“We are aware of the potential tariffs. We are closely monitoring the situation and remain committed to providing top-quality products for our customers,” he says. Uber and Bird declined to comment. Segway-Ninebot did not respond to requests for comment.
Of the $50 billion worth of goods currently proposed for tariffs, more than $20 billion are in the consumer electronics sector, according to the CTA. The IT industry’s longstanding reliance on Chinese manufacturing would make it difficult to find alternatives, Kowalski says, while extra duties on electronics components would also make it more expensive to build products in the U.S.
“To set up [manufacturing] with another company in a new country that can make that specific product is near impossible or will take up a long time to establish,” he says. “We do want the government to try to address the protection of intellectual property in China, but we think there are a lot of other ways to go about it.”
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