US Tech Firms Feel the Pinch from China Tariffs
Deena Ghazarian’s experience illustrates the challenges faced by U.S. tech firms. Back in 2019, her California-based company, Austere, was just starting to supply major retailers with high-end audio and video accessories, primarily manufactured in China. Then, former President Donald Trump’s tariff policies dramatically changed the landscape.
Before the tariffs, Ghazarian’s imports faced no additional costs. However, overnight, she was hit with a 25% surcharge on every cable and component. She was forced to absorb those costs, and, for a time, she feared her business would fail.
“I literally thought I am going to start and end a business in less than a year,” she remembers. “I had spent all this time, money and effort, and to have something like this blindside you was shocking.”
Austere survived, but it, and numerous other businesses, are now in a similarly precarious situation. Since returning to office this year, Trump has raised tariffs on all goods imported from China by 20% and imposed tariffs on Canadian and Mexican products.
Deena Ghazarian says her business almost went bust because of tariffs in Donald Trump’s first term of office.
Trump has stated his intent to encourage those countries to curb the flow of illegal drugs and migrants into the U.S., to bring manufacturing back to America, and to address what he views as unfair trade imbalances. However, these new duties are far wider in scope than before, when exemptions were more common.
Smartphones, computers, and tablets are now being taxed for the first time, while taxes on other goods have increased. According to Ed Brzytwa, vice president of international trade at the Consumer Technology Association (CTA), “US importers have to pay these taxes not the exporters. It’s American businesses and consumers who will suffer.”
Ms. Ghazarian’s business is particularly vulnerable. According to official data, China remains the leading supplier of electronic products to the US, accounting for $146 billion (£112 billion) in imports in 2023. The CTA also notes that 87% of U.S. video game console imports, 78% of smartphones, 79% of laptops and tablets, and two-thirds of monitors came from China that year.
While some companies have sought to diversify their supply chains away from China since Trump’s first term, other countries may not offer the same manufacturing expertise.
China remains the centre of global tech manufacturing
Meanwhile, Trump is now also targeting Mexico, another large electronics supplier. Although domestic manufacturing has increased due in part to tariffs, it remains limited by high costs and strict regulations.
Mary Lovely, a senior fellow at the Peterson Institute in Washington, D.C., noted, “Yes, Apple now makes some iPhones in India and [the Taiwanese chipmaker] TSMC has been diversifying to Arizona. But China is still a massive part of the supply chain. Relationships with new suppliers take time to develop, they are costly to develop.”
Research indicates that companies often pass the costs of tariffs onto consumers through price increases. Corie Barry, the head of US electronics retailer Best Buy, recently stated that “the vast majority” of new tariffs will “probably be passed on to the consumer” because of industry’s narrow profit margins.
In February, Taiwanese firm Acer stated that the price of its laptops would likely increase by 10% due to the 10% duties imposed on China at the time, and US group HP has warned its profits would be lower because of the tariffs. The situation is complex and evolving.
Ms. Ghazarian fears raising prices might backfire. “There is a price point where the customer is satisfied with the value of goods provided. The moment I shift above that I start to lose customers. High inflation has squeezed Americans.”
In Trump’s first term, companies like Apple were successful in securing product exemptions, and there’s a possibility for more. Some suggest that Trump views the tariffs as a negotiating tool and may ease them to gain concessions, as he did when China agreed to purchase more American goods in a 2020 deal.
A US economic slowdown could also influence his decisions. However, for now, tensions seem likely to increase. China, Mexico, and Canada have pledged to respond to any US duties imposed on them, and Trump has threatened further tariff hikes.
This situation carries the risk of driving up the cost of tech goods globally, especially if companies are forced to relocate manufacturing to countries with higher labor costs. In addition, countries may retaliate with tariffs on imported US technology.
Ms. Ghazarian says she is worried, but is prepared this time. She pre-ordered extra inventory before Trump took office and is storing it in her warehouse. She hopes that will help the company “pivot” again.
“That might mean finding a more cost-effective way to produce the product or doing something completely different. It’s frustrating I have to focus on survival rather than growing my business.”
