U.S. Tariffs on China Impacting Tech Startups

Financial Times writer Richard Waters reported recently that, “The price of a new ‘smart home’ controller from US start-up Brilliant just went up $50 — even before it went on sale.

“The three-year old company joined the race to create intelligent home devices last week, launching a wall panel that combines a light switch with things such as music controls and a microphone to talk to Amazon’s Alexa smart speaker.

The White House’s latest round of threatened tariffs on imports from China — where the device is manufactured — led the company to push the price up to $299 at the last minute, to absorb the expected costs. Brilliant hopes the typical customer will buy five of the panels for their home, says Aaron Emigh, chief executive, adding $250 to the cost of an installation.”

The FT article explained that, “In the technology industry, hardware start-ups face some of the longest odds for success. Until they reach high enough volumes to strike better deals with suppliers and support the costs of brand marketing it is hard to make the economics work, and profit margins are notoriously low.

“‘When you’re in hardware, a 25 per cent tariff can be a death knell to your business,’ says Nate Kelly, a supply chain expert who now heads TrackR, a company that makes Bluetooth devices. The lack of a financial cushion or a diversified set of products means many companies will not be able to ‘ride this out for six months or a year,’ he said.”

Mr. Waters added, “The impact is not limited to start-ups. At the end of last week, Apple said that it expected to pass on import levies on products such as its AirPod headphones and Home smart speaker to consumers — a warning that brought a tweeted riposte from Donald Trump, who told the company it should shift production to the US instead.

But start-ups are likely to be hit hardest, whether their products are made in China or they import components and do the final assembly work in the US.”

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