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High tech items escape Trump’s tariffs

Many high-profile consumer technology
items such as “smart” watches and speakers were spared by the U.S.
tariffs that hit some $200 billion worth of Chinese products.
 
But the less flashy home modems, routers and internet gateways that make them work weren’t so lucky.
 
Consumer tech industry officials and the
U.S. Customs and Border Protection agency say they expect billions of
dollars’ worth of these products, including those designed for home use,
will be subject to the 10 per cent tariffs
activated on Monday.
 
The move will effectively create a
two-tiered tariff structure for consumer internet, with many products,
such as Fitbit (FIT.N) fitness trackers, Apple Inc’s (AAPL.O) watch and
Amazon.com Inc’s (AMZN.O) Echo smart speaker being
favoured over routers and internet gateways from Arris International
(ARRS.O), Netgear (NTGR.O), D-Link (2332.TW) and others.
 
“We’re operating under the assumption
that the tens of millions of devices that deliver high-speed internet
into consumers’ homes will be impacted by these tariffs,” said Jim
Brennan, Arris’ Seniour Vice President of supply chain,
quality and operations.
 
“It feels anti-consumer because our devices are what enables the core of consumer tech,” Brennan told Reuters.
 
The modems, routers, switching and
networking gear that keep the internet functioning were not included in a
newly created U.S. tariff code that was exempted from the latest China
tariffs, a spokesperson for the U.S. Customs and
Border Protection agency said.
 
The agency has made no distinction
between consumer-use modems and routers and the commercial network
equipment used by data centers and broadband internet providers.
 
Most new internet-connected devices had
been lumped into a broad category in the U.S. Harmonized Tariff
Schedule, 85176200, “Machines for the reception, conversion and
transmission or regeneration of voice, images or other data,
including switching and routing apparatus.”
 
The catch-all category saw $23 billion in
U.S. imports from China and $47.6 billion from the world last year. It
was the largest component of U.S. President Donald Trump’s latest
tariffs targeting Chinese goods.
 
The U.S. Trade Representative’s office
had said it was breaking out items such as smart watches, fitness
trackers, Bluetooth audio streaming devices and smart speakers into a
new subcategory that would be exempted, but it gave
few details.
 
According to a notice posted by the U.S.
International Trade Commission, computer modems would stay in a separate
sub-category, while “switching and routing apparatus” would be put into
a new sub-category. Neither of these sub-categories
were granted exemptions from the tariffs.
 
“Although we have not had occasion to
issue rulings on the scope of a provision for ‘switching and routing
apparatus,’ we agree that as a general matter, modems, routers, and
networking equipment will be subject to the remedy,”
a Customs and Border Protection spokesperson said late on Friday,
referring to the 10 percent tariff.
 
It was not clear how much of the $23
billion in Chinese imports within the catch-all category could escape
tariffs, but a Reuters review of industry data suggests the share could
be small.
 
U.S. Census Bureau data has not yet
captured the volume of annual imports from China — or any country — of
the goods that will be exempt.
 
But the Consumer Technology Association
estimates that the U.S. market for fitness trackers, smart watches,
smart speakers and wireless earbuds and headphones was $8.2 billion in
2017, with forecast sales of $11.6 billion for
2019.
 
Even if China produced a majority of those goods, exemptions would only apply to a fraction of the $23 billion category.
 
CTA has forecast direct sales of modems
and routers to consumers at $2.3 billion for 2019, up from $2 billion in
2017, excluding the products supplied directly by cable and broadband
internet providers and equipment used in data
centers and other infrastructure outside the home.
 
But the group argues that consumers will bear the costs of the tariffs, even if their service provider buys the modems.
 
“Overall, access to the internet will get
more expensive, mobile plans will get more expensive, and connected
devices that go to your smart phones will get more expensive because
everything speaks to each other,” said Izzy Santa,
director of strategic communications for CTA.

 
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