Monday, April 7, 2025
Saturday, April 5, 2025
Tariff Impacts
Tariff Impact: It isn’t Pretty
Given the recent announcement of two 10% tariffs on imports to the US from China, the game industry is looking at 20% minimum price increases on the items we import from China, which is a whole lot of products. The idea, as the administration has said multiple times, is that foreign governments pay the tariff, billions of dollars flow into the US treasury and, to avoid tariffs, companies flock to move their operations to the United States. None of which is going to happen. Remember the tariffs put into place during the first Trump administration? They resulted in fewer jobs in the US, reduced GDP by a full 1%, cost taxpayers about $900,000 per job saved, cost the average household just over $1200 per year, cost the American workforce about 245,000 jobs, and did nothing to reduce the national debt.
Here is what the game industry can expect to see in terms of price changes this year as a result of the tariffs. Publisher manufactures a game in China. Why? Because it takes 2-4 years to create a new supply chain. Companies cannot shift their channels of distribution within a month or so. Ergo, publisher bringing the product into the US has to pay a tax of 20% on the imported product. A game that cost $10 to manufacture and ship will now cost $12, with $2 of that going to the US government. Distributor margins are about 10-15%, at least they were when I worked in distribution decades ago. If anyone in distribution wants to share more recent margins my email is at the end. Distributors will have to sell the game to retailers for about $18. If retailers want to keystone the game’s price to make a 50% margin, the price goes to about $36 when sold to the consumer, about $6 more than the game would sell for without any tariffs.
Another problem is the general uncertainty regarding the imposition of the tariffs. The Trump administration has said it will impose tariffs on Canada, the European Union and Mexico than changed its mind almost the next day, pushing back the start day. Although we probably won’t see any roll back, absent negotiations, of tariffs on Chinese imports, it could happen What do manufacturers do, absorb the cost of the tariff in the hope/expectation that the Trump administration will roll them back or figuring them into the cost of good sold as a fact of doing business, keeping higher prices which could reduce the number of price sensitive customers buying? If the tariffs get negotiated away and manufacturers increased prices, do they roll back the price and leave other members of the channel holding products with tariff inflated prices?
From what I have read, expecting increased tariffs after Trump won the presidency, a significant number of manufacturers chose to ramp up production runs during the last quarter, opting to warehouse product brought into the US under the previous tariff structure and have enough inventory on hand to avoid tariff fueled price increases through the end of Q2 or beginning of Q3, with the hope that the Chinese tariffs get negotiated away and the 25% tariffs on steel and aluminum imports never get imposed but it does not look promising.