The three major console manufacturers behind Switch, Xbox One, and PS4--Nintendo, Microsoft, and Sony--have penned a joint letter voicing their opposition for tariffs that would impact Chinese goods including game consoles. The three say the proposed tariffs on video game consoles would cause harm to consumers, developers, retailers, and manufacturers, risk job losses in the industry, and stifle innovation.
"While we appreciate the Administration's efforts to protect U.S. intellectual property and preserve U.S. high-tech leadership, the disproportionate harm caused by these tariffs to U.S. consumers and businesses will undermine—not advance—these goals," the letter states.
The letter goes on to note that in 2018, more than 96% of video game consoles imported in the US were manufactured in China, and that moving 100% of manufacturing to the US or another country would cause "significant supply chain disruption" and increase costs "even beyond the cost of the proposed tariffs."
"Each video game console comprises dozens of complex components sourced from multiple countries," it says. "A change in even a single supplier must be vetted carefully to mitigate risks of product quality, unreliability and consumer safety issues. Tariffs would significantly disrupt our companies' businesses and add significant costs that would depress sales of video game consoles and the games and services that drive the profitability of this market segment."
The industry leaders also note that consoles are sold under very tight margins, sometimes at a loss. Increasing the cost of production would either need to add to the sales price ("console purchasers are extremely price sensitive") or cut into the companies themselves. A 25% price increase in consoles to match the tariff cost would "likely put a new video game console out of reach for many American families who we expect to be in the market for a console this holiday season."
It goes on to note the potential harm to third-party accessory makers, developers, and especially retailers. In particular it voices concern over these tariffs going into effect before the 2019 holiday season.
"Given that retail margins on video game consoles are generally very tight, we see no possible reasonable scenario for retailers other than passing tariff costs down to consumers," it states. "Any imposition of tariffs leading into the winter holidays—the strongest sales season for consoles—would have a significant negative impact on U.S.-based retailers and their employees, in particular because promotional offers on consoles are important to driving sales volume. Tariffs would make it especially difficult for both console makers and retailers to support the types of promotional offers typical of the holiday season."
The proposed tariffs would add a 25% tax on all imports from China. That tax is paid for by the importers--in this case, the console manufacturers themselves. But as pointed out in the letter, these increased costs would likely be offset with price increases on retailers and consumers. Nintendo has reportedly been preparing itself for the tariffs by moving manufacturing out of China ahead of the launch of rumored new Switch models. The United States Trade Representative held hearings on June 17, and now could put them into effect at any time.