Table of ContentsTable of ContentsWhat is a tariff and how does it work?Why are tariffs imposed?Tariffs as a negotiation tacticHow could manufacturers respond?Will TV prices skyrocket?Should you buy a TV now?The consumer bears the cost. Remember that because its going to come up over and over and over, especially when it comes to talking about tariffs and whether youre about to pay a whole lot more for consumer electronics.I call it a terror over tariffs or terroriffs a fear that tariffs will automatically mean higher prices on some of the things we buy, especially items that already tend to be expensive. In order to understand how this plays out, lets break down how tariffs actually work, how they affect supply chains, costs, and pricing, and when they can and cant be used as a tool a means to an end.First, this is not a political post at least, its not politically motivated. Its about the intersection of politics and economics political strategies and different policy possibilities. Its also about the calculus involved in a number of potential scenarios that could end in consumer electronics, and specifically TVs, getting more expensive. Possibly a lot more expensive.RelatedLets start with the basics. A tariff is a tax on imported goods. The idea behind it is simple: When a government slaps a tariff on a product coming into the country, it forces the company importing that product to pay a fee to the government.This warrants repeating: It forces the company importing that product, not the company making it, to pay an added fee.It may sound straightforward, but heres where misunderstanding can happen. Many people assume that tariffs are paid by the foreign companies selling goods to the US. However, thats not how it works. The US companies who import those foreign products pay the tariff. And guess what? They dont just eat that cost. They pass it on to retailers, who then pass it on to the consumer. The consumer bears the cost.Digital TrendsLets put that in real terms: Say theres a new tariff on TVs imported from Mexico. Many companies based in Asia use Mexican manufacturing, so when the TV comes into the U.S., it comes in from Mexico, even if the TV brand is from China or South Korea. If a U.S. retailer like Best Buy buys a TV from a foreign manufacturer and suddenly has to pay an extra 10% tariff, that gets added to the final price of the TV.Some companies absorb part of the cost to stay competitive, but only to an extent. Over time, the burden almost always makes its way to the buyer.Tariffs are often used as a bargaining chip in negotiation tactics, but why else might they be imposed?One common justification is protecting domestic industries by making foreign goods more expensive. The idea is that it would give US-based manufacturers a competitive advantage. If imported goods cost more, companies will have a stronger incentive to produce similar products at home in the US. If the cost difference isnt that much, buy American.Theres a fundamental problem with that notion, however. Few consumer electronics are made in the US, and moving large-scale manufacturing back to the US isnt as simple as imposing tariffs. You have to build factories, create new supply chains, and this one is huge hire a workforce. It could take years, if not decades.Theres also the issue of labor costs. Companies manufacture outside of the US because its significantly cheaper. In countries like Mexico and Vietnam, labor costs are a fraction of what they are in the US.While some policymakers argue that tariffs can lead to more domestic production, the caveat is that it would take an incredibly long time to happen, if at all. If it did happen, goods would be far more expensive than they are now.WikipediaWeve seen attempts to move manufacturing back to the U.S. before most didnt go as planned. A great example is Foxconns failed LCD factory. In 2017, Foxconn (who make a lot of Apple stuff) announced plans for a massive LCD manufacturing plant in Wisconsin with the promise of about 13,000 American jobs. Fast forward to today: That plant never became the large-scale factory it was intended to be. Its basically a network and data center that employs almost 1,500 people. It went from a multi-billion dollar project to a just-under-$650 million project. Foxconn cited cost issues and shifting economic realities as the reasons for its demise. However, it received massive tax cuts, which helped get it to where it is today. Did we win? Did Wisconsin win?When it comes to cost issues and shifting economic realities, labor costs are a huge factor arguably the biggest factor. To put this into perspective, the average manufacturing wage in Mexico is around $4 per hour, while in the US, its closer to $25 per hour. That kind of wage difference makes it difficult for companies to justify large-scale manufacturing in the US when they can produce goods for a fraction of the cost elsewhere.While tariffs might encourage some companies to rethink their supply chains, the idea of mass US manufacturing making a comeback is extremely unlikely. Instead, companies will look to shift operations to Vietnam, India, or Malaysia places that already have an established manufacturing infrastructure.Digital TrendsYou could argue that tariffs would raise prices on TVs and other electronics so much that they would be as expensive as the priciest electronics made in the US. However, I dont think the math supports that argument domestic products would still be significantly more expensive. Tariffs are not a leveling the playing field tool in this way. They can help counter artificially low prices created by foreign manufacturers designed to gut foreign economies thats where the notion that tariffs are a great equalizer tool may come from. However, in this context, tariffs wont do that.Whats more likely is businesses will take the more immediate and cost-effective route: shifting operations to another low-cost country instead of coming back to the US.Its possible that isnt the end-game for the current administrations tariff threats. What if tariffs are just a big bargaining chip in the game of negotiating something else?Another reason tariffs get imposed or just threatened is as a bargaining chip.The administration has already made moves on tariffs related to Taiwan-made semiconductors, and there have also been threats of tariffs on goods from China, Mexico, and Canada. But are these threats just talk, or is there an actual long-term plan to use them as leverage in negotiations?Before weve seen the US government threaten tariffs, only to walk them back later in exchange for better trade deals. The idea is to pressure other countries into offering better trade agreements or concessions on manufacturing, labor, or technology-sharing policies.Digital TrendsHeres a recent example: In 2018-2019, tariffs were placed on goods from China, affecting everything from washing machines to circuit boards. Some companies adjusted their supply chains, while others waited for negotiations to play out. Some of those tariffs were eventually reduced or eliminated through trade deals.Could that happen again? Absolutely.But the big question is: How will companies react this time? Once you know your opponents tell once you know they are bluffing or have some ulterior motive you might play the game differently.Historically, when tariffs do go into effect, companies dont just sit back and take the hit. They look for workarounds. One of the most popular strategies is to move manufacturing to avoid tariffs entirely.A lot of TV production happens in China, Taiwan, South Korea, and Mexico. If tariffs hit those countries, whats the alternative? Some companies might shift assembly to Vietnam, India, or Malaysia places that already have some manufacturing infrastructure.That makes much more sense than suddenly starting to make TVs in the US. But, theres another positive consequence. We dont want all of our goods made in a few pockets around the globe. Think of it this way: If all the worlds zippers were made in Japan (and, parenthetically, many of them are check your zippers: most of them likely have YKK on them) and the country had another natural disaster that wiped out zipper manufacturing, that hit to the clothing supply chain would create mass chaos. Zippers need to be made in many different countries across the globe. Its good for competition and its good for the supply chain.Im into the idea of TVs being manufactured in more countries. But making TVs in the US again? Its extremely unlikely.Manufacturing TVs domestically is incredibly expensive compared to overseas. Labor costs are higher, the infrastructure isnt set up for mass TV production, and companies cant build new facilities overnight. Moving a factory to another country with an established supply chain? Thats doable. Moving it to the US? Its not going to happen.In the past, there have been threats of tariffs that werent imposed. In 2019, the presidential administration announced new tariffs on consumer electronics expected to include laptops, smartphones, and gaming consoles from China. After pushback from tech companies and trade partners, the tariffs were delayed and then eventually scaled back. Trade agreements mitigated their impact on many consumer electronics.This scenario is important to keep in mind: Just because a tariff is proposed doesnt mean it will happen, and if it does happen, it may not be as extreme as initially feared. Thats why I think we have to adopt a wait-and-see policy. Threats dont always turn into actual tariffs, and if tariffs are levied, it doesnt mean they will stick around for long.Digital TrendsAlso, companies will adapt. Some will shift manufacturing, some will absorb costs, and some will find loopholes. That doesnt mean prices wont go up it means its not as simple as tariff goes up, price skyrockets.Weve been here before. When past administrations imposed tariffs, many worried about massive price increases. Some happened, but not to the extreme that people feared. Companies made adjustments, deals were struck, and eventually, things stabilized.Whats the takeaway? We dont know exactly whats going to happen yet. What we do know is that if tariffs go into effect, consumers will feel it in some way whether thats higher prices, fewer choices, or manufacturers shifting operations.The best thing to do right now is watch closely and be ready. If youre in the market for a new TV, Id suggest buying one now. Its one of the best times to buy a TV in the normal product cycle. Considering that we dont know if prices will increase, theres an even greater incentive to punch that buy button.If youre not ready to buy now, keep an eye on whether these tariffs actually materialize. If they do, expect to see some price hikes before long. Most brands wont announce TV prices until March or April theres still time for them to jack up prices to hedge against the threat of tariffs (Ive seen companies adjust prices up and down the day before theyre officially announced, waiting until the last second to make a decision).Editors Recommendations