China-US trade war:Who is the winner in the contest of the musical instrument market?

Since the start of the trade war, the import and export trade of various domestic industries has been affected to varying degrees.For the instrument industry, the shrinking of the export business has become a common concern for the industry.Beginning on January 1, 2019, the United States officially began to impose a 25% tariff on Chinese-imported music products. Under the impact of high trade barriers, only Chinese companies are injured?What is the impact of the US and even the global instrument market?

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1.Direct result of tariff increases

From January 1, 2019, the United States officially began to charge 25% tariffs on Chinese music and audio products, while the previous tariff rate was only 4-6%.This is part of Trump’s trade policy with China. The US government is trying to use tariffs to force the Chinese government to lift tariff and non-tariff barriers to US products and to crack down on intellectual property infringement.

Conservative speculation that tariff increases will lead to two direct outcomes.First, the price of Chinese products will rise because the industry’s profits are not high enough to allow US dealers or manufacturers to absorb 25% of CIF prices.
Second, American companies will gradually look for other places of production. The labels of the products may be labeled Indonesia, Vietnam, Mexico, or even the United States. This is already happening.

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2.American consumer attitude

What remains unknown is how consumers in the United States will respond to price increases and what actions they will take to circumvent the negatives of the new tariff policy.Based on past
experience, consumption will use various methods to avoid taxation in order to obtain maximum benefits.
Will consumers mind that the price of a Chinese pedal has risen from the original $150 to $190? Or is a $300 guitar going up to $375?
Some producers and retailers say that a slight increase in commodity prices will have a huge impact on consumer demand or stimulate consumer demand in the secondary market.

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Although there is no basis for market research, P&G, which has done a lot of professional market research, once said that even the most sophisticated market research groups and consumer research reports can’t explain “what consumer’s willingness to consume”.Therefore, regarding the impact of price increases on market demand, we cannot conclude this conclusion.Based on the inflation rate, the current price of musical instruments has never fallen. In the past few years, the rise in the price of domestic musical instruments in the United States has not curbed consumer demand.

3.Tariff differences lead to abnormal behavior

The same is the Chinese musical instruments and audio products. When entering the United States, the tariff is 25%, while the tariffs entering the EU or Canada are only 4-5%. The unfairness of such tariffs will be very high for Canadian and European retailers. The large pricing advantage will fuel the grey market and add turbulence to already complex international trade channels.

The US Customs and Border Protection (CBP) regulations state that individuals can be allowed to carry $800 equivalent of self-use duty-free items, which also facilitates potential “transnational trade”.At the same time, the network also allows foreign retailers to quickly and easily reach out to American consumers and has an affordable shipping option.This will prompt a large number of daring foreign retailers to use the $800 tax-free interest to encroach on the US market, which is nearly 40% of global music product sales.

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It is not unfounded for online retailers to use tariff differences to protect their export business.In Australia, imported guitars charge a 10% tariff, and some US retailers use the $1,500 personal tax exemption to earn the difference.This situation has lasted for a decade, and Australian retailers and dealers often complain that their government has put them at a disadvantage in trade.

4.Last

In recent years, tariff fluctuations have been large. In 1915, tariffs were the main source of income for the US government. Today, tariffs account for less than 5% of the US government’s economic resources.Since the establishment of the European Union in 1992, tariffs have gradually lost their effect and international trade has prospered.

The current US tariff policy toward China is not final, and trade policy will undoubtedly be adjusted with the US election.In the context of today’s global economic interconnectedness, the uncertain outcomes and huge impacts of tariff policies may exceed our imagination, and as such, the impact of this 25% tariff is even more unpredictable.

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Post time: Mar-29-2019

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