The Trade War and Increase in Hardware Prices :: All You Need to Know

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You might have seen a number of articles both offline as well as online media about the possibility of the increase in hardware prices – in fact an increase in the price of all electronic products. Chances are, you might even have seen an increase in hardware prices due to the widespread speculations about the same. This article is to clear any doubts you might have about the current scenario that is the hot topic for debate in forums about electronic gadgets and technology throughout the Internet.

So what happened?

Well, everything roots from the US-China Trade War. Basically, President Trump, during his election campaign had proposed to bring back jobs to America, as well as cut down on Chinese imports. In order to bring about the same, the tariffs for all Chinese imports have been increased. Mind it, this was done to force companies to stop importing from China and support local industries by sourcing from them, as well as bring back quite some jobs which were lost due to outsourcing to other countries, mostly third world countries where labor is cheap.

However, things are not as easy as the US Congress wanted it to be. A majority of the imports from China include finished electronic products, as well as parts required for the production of finished electronic products. This means that production costs are going to go up, as parts are going to get more expensive. Moreover, if production has to be done locally, that means expenses due to wages also increase – if they have to keep up with the minimum wage law. In order to keep up with the increase in expenses and maintain a healthy profit margin, companies will increase prices, which means that consumers will have to bear the burden of increased prices due to the new regulations.

But I don’t live in America. How can it affect me?

If you think the increase in prices is restricted to only America, think again. These tariffs and other regulations may increase prices for only America as a whole, but it has far-reaching consequences. In order to make up for the loss due to the tariffs and higher labor costs, companies might increase prices not only for America but for every other region where their products are sold. Needless to say, the hardest hit by this law are third world countries, where the gaming scene is quite small.

Sheesh, sounds bad. Any viable solutions?

There are alternatives, of course. First is that companies actually offset the increase by adjusting prices so that there is no effective increase. However, this does mean taking a hit on profits. Most manufacturers have a very low-profit margin of around 2-3%, as compared to the profit margin of 14-15% on average for retailers. Adjusting prices means giving up on that profit, which isn’t exactly something that is feasible in the long run. The other alternative is to look for other places to assemble their products, the most promising region being Taiwan. Taiwan already has factories set up for low-scale production, but improving the capacity of production as well as shifting the overhead from China overnight isn’t going to be a thing. While the search for a more viable region for production continues, the prices are going to shoot up.

What are its effects on the industry as a whole?

The bad thing about the tariffs, this sets a pricing trend in the industry that isn’t going to go away even if the tariffs are removed. Remember the pricing fixing issue in RAM production? Even after Samsung, Hynix and Micron were served legal notices, prices did not go back to normal. It is predicted that the increase in prices due to the tariffs will set a similar precedent here. Why cut down on profits when you can make more profits and keep the consumer base happy?

The problems due to the tariffs are already evident, at least in the Indian gaming market. The tariffs place an increased importance on America and the dollar, which naturally means that the value of the dollar goes up. Due to a strengthening dollar, prices of every imported item increases (since the dollar is the currency of choice for trade). A 5-10% increase in hardware prices have already been reported. An official announcement about the increase in pricing hasn’t been made, so it is yet unknown whether hardware prices will increase again in the future or not.

Should I be worried about it?

Of course, it affects anyone using electronic gadgets and hardware, which is pretty much everybody. This ‘issue’ can have far-reaching consequences, as well as affect buying habits of consumers all over the world. There is no solution at present, except accepting to pay the premium if you want to upgrade. While the industry will eventually come to grips and overcome the several challenges posed, it isn’t going to be anytime soon, and while they’re busy searching for alternatives, consumers will suffer.

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