China / US Trade War Impact Splits IndustryBy IPVM Team, Published Jun 04, 2019, 09:08am EDT
As the trade war continues to heat up, 170+ integrators told us "What impact will the US / PRC China conflict have on the industry?"
Respondents were sharply divided, as the chart below shows:
The top positive theme was that the overall quality of the industry will improve while the top negative was that pricing and disruptions would increase.
Positive - Overall Quality Of The Industry Will Improve / Level Playing Field
Many integrators said they will be helped by the trade war as cheap prices, the race to the bottom, and product dumping is mitigated by the trade war, as shown below:
- "As a system integrator who promotes more high-end products, this will help us in the competition eliminating China-made ones."
- "While this is a negative in concern to pricing, it has allowed us to have discussions with three of our national / regional customers, one of which is federal. On the fed side we no longer can supply a price play camera, so now we supply a camera that meets the new requirements with more margin. Ultimately this is a positive, over my almost 40 year run in this industry cameras have become a commodity, this month alone we will sell 800+ Dahua cams to several national accounts with minimal margins. My company is willing and does pay more for products that at a minimum are North American manufactured. The positive take away is that we now are able to have a conversation with our existing as well as new customers and offer both prices. Whereas in the recent past it was always a price play, and lowest price won."
- "Coming from an Asian perspective, the conflict will help to moderate the price and consideration for choosing China products."
- "China has been flooding our markets with artificially low priced products, making it hard for US companies to compete, we need a more balanced trade to build our manufacturing, and yes this will result in higher prices overall but will make the US manufacturing stronger."
- "I think it will eliminate the bottom feeders and help increase the quality of the industry."
- "The only negative I see is the cost of the equipment going up, but if it gives a chance to better brands/companies to compete with the cheap Chinese product it will be a positive for our industry."
- "Dumping will decrease."
- "Positive for high-quality cameras like Axis."
- "We don't generally sell the low-end equipment, we have as requested by customers 3 sites and each location we have been back for cameras leaking...we try to stick to Axis, Bosch, Pelco."
- "It shall remain to be seen how(if any) impact this would have in the industry. personally, I believe this will push the likes of HIK and Dahua to focus more on their R & D and provide solutions that can compete with the likes of Axis and Avigilon and stop the race to the bottom. Like the saying goes, 'cheap is expensive'".
- "This opens the door again for VALUE SELLING. The race to the bottom has diluted many security salespeople into believing that they can only sell on price. The fact is, most clients will pay a bit more if there is a good reason for it like VALUE."
- "It may bring the cheap prices of the Chinese hardware up to normal levels and make it easier for us to sell better products."
- "I think that it will cause the players like Hik and Dahua to step up their game. It will also give other manufacturers the opportunity to compete on a more level playing field."
- "Elevates the standards of the industry."
- "A lot of distributors around the world have been struggling to keep up with the aggressive Hikua business approach. This will help."
- "It will hopefully stop the low-end cannibalism of the Video market. Cheap cameras and systems are not the answer."
- "Reducing/removing influences driving the industry to a lowest-price, bottom-dollar state will hopefully help those who remain."
- "Additional tariffs or outright ban of China-based product will improve profitability back to integrators. Current low margin products are problematic to our viability to maintain reasonable margins."
- "Hopefully, we will have less junk available. Perhaps people will see the benefits available in not jumping on the cheapest $."
- "Hopefully, it will stop the race to the bottom."
- "Chinese products would be impacted resulting similar or higher pricing of them compare to North American products and can get more competitive situations than before."
- "First I think that it will eliminate some of the intentional security vulnerabilities in the video products. Second I think it will steer business towards companies that don't have hidden agendas and seek to improve the products and capabilities."
- "Exposing their technology for what it is makes our industry, clients and country safer. These exploits were not accidental, they were designed into the devices. Thank you for staying vigilant!"
- "I believe it may positively impact the US market to drive up the pricing for the extreme low Chinese cameras like Hikvision and Dahua that have flooded the market along with others."
- "I prefer to sell Axis and other non-Asian manufacturers. This should help unless the tariffs affect those parts getting sourced by Axis etc. If Asian equipment goes up in price it will make my stuff a better value."
Negative - Lots Of Price Increases, Shortages, Suspicion, and Disruption
The largest portion of negative voters felt the trade war would lead to higher prices, product and component shortages, suspicion and more disruption of the industry and companies tried to adjust. One respondent even envisioned an eventual arms race between the US and China:
- "A lot of products will be more expensive."
- "Camera price will surge & security issue will be highlighted."
- "IP Camera prices will likely increase as Chinese manufacturers will have difficulty sourcing parts from the US and vice versa. US and European suppliers will likely start OEMing from Taiwan, Vietnam and other Asian countries."
- "The price of parts & components for security equipment will increase, cutting back on demand. Specifically, cameras, many US companies (Honeywell) private label components from China; and manufacturers use Chinese labor for circuit board fabrications, & a rise in costs will eventually be passed down to the consumer. Communications systems: since China is winning the 5G LTE cell installation competition, with Europe, Asia, South America, Russia & Africa already making major commitments to a Chinese manufacturer, the USA is losing ground on market share, leaving us outside the mainstream. It also will mean we will eventually have to interface to the Chinese product, leaving vulnerabilities in our data networks. The development of killer satellite technology & hyper-sonic missile technology will push us into a massive arms race with the most populist nation in the world."
- "There will always be two opposing impacts: Positive: Non-PRC-related companies may see a pause or slowdown of the pricing models that have become increasingly lower. Negative: We feel the impact will be negative. Resources for components are more heavily PRC-related and lack of availability will create supply issues and impact cost."
- "Pricing increases for projects that have already been bid, but not yet accepted."
- "Given that a lot of the components are made in PRC if manufacturers want to comply then they will need to source elsewhere short term this may be negative due to shortages etc."
- "it will drive up the cost of all electronics."
- "Cost will rise on OEM devices, or they will be unavailable."
- "With the reliance on Chinese components making up the lions share of video surveillance and access control products, along with Chiese manufacturing, it can only lead to increased pricing."
- "Costs are skyrocketing on basic materials, not just items like cameras. Items built with materials from China are going up."
- "In the short term parts shipped from China will go up in price. In the long term, most business will move away from what China is selling."
- "Most products are produced in China and the tariffs will cause a price increase at some point. I would hope to see a move away from Chinese production and unfair trade practices."
- "If the minimal impact is restriction of choice, it will be detrimental to my clients. I believe pricing will also be affected as well."
- "Prices have been increased in some parts that we use"
- "I expect the US/PRC conflict to affect prices (increase) and reliability of supply. On the other hand, China has been stealing our intellectual property for years and we need to find a way to make it stop (if we are going to continue to use them to cheaply build our products)."
- "Will result in higher product price and customer will not want to buy those product."
- ''While I think many of the mid- to large-scale integrators have moved away from Chinese-based cameras and platforms, there are simply too many components manufactured in China. The costs will be passed down the line, which ultimately hurts the end users."
- "The cost of cameras will go up."
- "I think we will see an increase in hardware cost and more equipment shortage across the market. I think we the market sales drop significantly compare to last year."
- "We rely on China's manufacturing for so much of our products, pieces and parts. A slower paced solution would be best instead of impacting so many people all at once. In the long run things will iron themselves out I feel. But the damage will be done. We will be paying higher prices for lesser quality products."
- "Anytime you limit tech you will limit the advancement of it. Our industry is built on tech. I think at first you will see an increase in the price of products. Longer term is harder to determine , as who knows what new things would have come along."
- "I feel that the increased tariffs will play a large role in equipment pricing across the board. Even companies who won't directly be affected by the tariffs will still raise their prices because they have the chance to. Any company who is willing to stick to their pre-tariff rates I feel will benefit greatly."
- "The trade war will impose additional costs on consumers of affected products and the ramped up rhetoric surrounding China's spying will lead to uncertainty and more disruption."
- "Most CCTV systems originate from China. CCTV systems would either cost more to import or may not be available on the US market anymore."
- "Prices, especially on lower-end systems will rise, causing delays or cancellations of installations."
- "Certainly, there will be some direct impact on supplies and components that will result in price increases. But I think the bigger impact will be the uncertainty and increased cost will slow down spending by companies and impact security budgets."
- "Everything's getting more expensive. I can appreciate any protections that are being enforced on copyrights but the short term impact is being felt in the cost of goods."
- "The decreased availability and increased costs of cameras and components used in none PRC cameras will degrade the desire for camera systems."
- "Primarily price increases on many parts."
- "I definitely feel that the industry will suffer due to the lack of cheaper cameras in the market. If we keep those cameras out of the market, then there is nothing keeping US made camera companies from bringing prices up... I know this is specific to that and that there are other options so this might not be a valid opinion. Anyways, I feel uneasy about how things are regarding this industry and the US / PRC conflict."
- "There will be both positive and negative impacts on the VMS market. The increase in the cost of cameras will have a negative impact on the industry as a whole. Higher costs = lower adoption. There may be positive impacts - more manufacturing in the US, a US factory that makes imagers, better cybersecurity on the cameras. But we won't know if this are real or illusionary for a few years at least."
- "Prices will go up if USA cannot import cheap Chinese products"
- "If the cost of materials goes up and forces vendor to charge significantly more then that cost has to be absorbed somewhere."
- "It will increase prices."
- "I think it will drive up costs and reduce competition. Many of the security concerns are legitimate in certain applications. China is responsible for a huge portion of camera manufacturing and development capacity. You can't shut that down and expect others to fill in the gap for several years."
- "The consumer is the one who will be impacted the most as the importers will pay the higher tariffs and pass the cost on to us in the form of higher prices."
- "Pricing will increase, we've already been notified by one vendor that pricing has increased. All costs associated with the trade dispute will be passed on to the end user, making project costs rise."
- "I believe the US/PRC China conflict will have a negative effect on the industry because it will limit competition which will in turn limit product development and raise prices."
- "Since many parts are manufactured in China, there will almost certainly be an impact on pricing."
- "Escalating trade war and tariffs affect the bottom line pricing and may force some installers to switch to non-China products. Either way, prices go up to the customer."
- "Just about everything manufactured these days has parts from China in them. In addition, this will not be very good for Hik vendors in the US."
- "Prices will rise and the variety of products available will fall. When goods cannot cross borders, armies will."
Less Chinese-Made Product Is Good
Many felt that a positive of the trade war would be less Chinese-made product in circulation:
- "A bit less Chinese-made equipment and a bit more non-Chinese made equipment is going to be installed, which is good because IMO China is heavily over-represented."
- "Maybe the cheap Chinese manufacturers will clean from US/EU markets."
- "Not exactly sure. May help kill dependency on China's cheap labor and manufacturing, but may increase price on items. In the long run, I believe the price is worth removing China, or any hostile state out of the equation of US Electronics and manufacturing."
- "The Chinese have used Chinese taxpayer dollars to prop up companies like HIKvision in order to buy an industry. They have succeeded. We cannot reverse this trend without a hard stance on fair trade and national security."
- "Purely speculation but these are the potential positives: 1. Components may be produced / developed in more 'US-friendly' nations. 2. Bringing to light and educating people that China is a totalitarian adversary that has a proven track record of technology theft followed by funding / sponsoring China-based entities / blocking foreign companies in China market to eliminate competition. 3. Slowing Hikvision/Dahua, etc. from what appeared to be their inevitable domination of the US market. 4. Forcing IT people to think realistically about the long term security threat posed by electronics design/manufactured in China."
- "Like anyone else, I supported Chinese manufacturing with regards to the Security / Surveillance Technology but I have to admit that it was a mistake and along with many in the industry we all decided to move away from Chinese product as a result of back door links into China. The US and many systems integrators feel it not safe to use or recommend Chinese product which will result in gains with USA security related products."
- "If the trade conflict goes on long enough to impact our industry, healthy competition will finally be restored and American manufacturers may be able to break the price barrier and become viable options for Lowe budget installations."
- "1-Is a position to start negotiating and regulating the technology and communications market. 2-From this point, both countries will begin to negotiate and evaluate the impacts in the different technology business segments. 3-I'm sure China already knew that this was coming and they were ready. 4-The second round of this negotiation will be the one to show the real actions of both countries. 5-Will impact those integrators who have a strong weight in Chinese products, and those who will not will be benefit, as well as other American products."
- "I think edging out Chinese influences on our security products is a no-brainer. I shared office space with the NSA when I was in Afghanistan and China is not a friend of ours to say the least."
- "Hopefully, this will flush out some of the cheap Chinese product that has flooded the market eroding profitability."
- "Hopefully, this strengthens non-Chinese products market share"
- "I believe this will force, or encourage, American companies to start manufacturing products here in the United States instead of overseas."
- "It supports products that do not have a negative effect on the industry overall. Ideally, this entices more manufacturers to manufacture in the US."
- "I think the ban will re-focus the need to manufacture either in the US or in countries that respect intellectual property. It doesn't make sense to me that the western countries do not recognize the threat of Chinese power and global ambitions and they allow China to fuel that growth with stolen technology."
We Need Each Other
However, some integrators believed that the US and China needed each other to foster competition, and innovation:
- "More than just finished products come from China- parts, components, etc. Not all Chinese products are bad. It is short-sighted to think the banning of importation will not have a negative impact....as China bans American products."
- "In a highly interconnected global economy, there is no room for protectionism. There is no winner in such a conflict. US companies need the Chinese market, and Chinese companies currently need US technology, but that could change in the medium term."
- Short-Term Pain, Long-Term Gain
- "In the short term, I believe the industry will suffer pricing increases and delivery delays because of the number of Companies that have based their manufacturing plants in China. In the long term, I hope the industry brings manufacturing back to local production and help their respective Countries economies improve. Also, I believe the YUAN should be revalued."
- "It is difficult to measure the repercussions given that they are the two major economic nations, but yes, there will be a setback in the development of technology because both nations need each other to develop new things."
- "How do we (USA) justify sending thousands of manufacturing jobs to China and then take a stand against their products? Either have free trade, or none, but know that collective research & development is more effective than individual r&d."
Cybersecurity Over Cheap Is Good
A fair number of voters felt the trade war was good because it signified that people were considering cybersecurity over low cost, as seen below:
- "It will hopefully encourage people to consider the exposure of data to unknown entities regardless of nationality and encourage them to take steps to protect that data instead of just buying the cheapest stuff they can find. Plus, isn't it painfully obvious to everyone that using products made in China to record our government and military facilities is kinda stupid?"
- "Better cybersecurity and US Manufacturers position in the market is enhanced."
- "Due to the ban on Hik products we have recently received a large amount of projects for the replacement of the Hik NVRs and Cameras due to the network security issues with the product."
- "It may stop some of the foreign price pressure. Also, it may help with challenges with getting customers to focus outside of just the lowest cost items helping them to realize that security and other items may be a factor for consideration during procurement as well."
- "Fewer sales of Hikua, fewer vulnerabilities in the IoT. I had a tech come to me yesterday saying he had a breakthrough. He did not pay attention much when I railed against Hikvision. His previous employer sold Hikvision. then he had to convert 22 Hik cams to an ACC platform. All that info that has to go in on XML to get a password reset opened his eyes."
- "It will drive up cost, but provide higher security standards."
- "More awareness of security issues and the specifics of PRC companies. More opportunity for other vendors market share."
- "Help focus on Cybersecurity issues."
- "It will help weed out the competition who undersells service by using cheap insecure cameras."
- Initially Negative, But Then Positive As Prices Stabilize And Focus Shifts to Quality And Security
- "Initially, it will have a negative impact, with impact to companies that are pursuing government contracts as it starts to limit economical options for equipment and services. In the longer run, it will be positive as companies need to watch their reputation management and take the lead on cybersecurity. Manufacturing options will need to include options outside of the US and China."
- "Initially, it will have a negative impact but overall it will be positive as China will be forced to enter into negotiations with us. Right now it is too one-sided in their favor."
- "The initial impact may be negative, however, in the long term, it will actually help the industry. Forcing manufacturers and distributors to diversify and allow the market to autocorrect. The higher priced camera manufacturers will lower price as they capture more market share. Also, the industry will be a bit more sustainable."
- "Costs will go up as an integrator, but those costs will be part of the rising costs of the quote. The customer will feel it, but the market will finish making the correction (South Korea, Vietnam and others ramping up) and the costs will ease back down. The purpose of the ban was partially political, but there is definitely a worthy cause in getting espionage-capable chips out of the market."
Forcing US To Develop Technology and Policy To Mitigate / Govern China Tech Is Good
A few mentioned that the trade war was good in that it was forcing the US to develop policies and technologies to improve cybersecurity and protect against incursions from foreign powers.
- "To consider a couple of different aspects. First, technology is being advanced to give us incredible capabilities. Even if it is China, the tech will evolve to do amazing things. The cost of policing governments use of the technology is a purely political issue. Eventually, they will all use the same AI to do the same thing to their citizens. Second, China is forcing other countries to develop policy to handle how the technology is allowed to be used. When every country has the technology the policies will be there to govern it. I feel like we're living in the formation of a Continuum-like society."
- "The world will awake to the security issues like the chip-on-chip NIC interface on Supermicro motherboards were discovered to have been installed to spy on us, or the many back doors that are built into the firmwares of many of the Chinese (maybe others?) DVR/NVR standalones. Maybe USA can load secure firmware, eliminate "bugged" hardware features, and finally deliver security with security systems."
- "Hopefully it will bring back more R & D and manufacturing. That would be a good thing to reduce security risks."
Short-Term Pain / Long-Term Gain
Most of the neutral voters said that there would be a negative beginning followed by a positive outcome in the long term as supply leveled out, new suppliers were found and pricing settled:
- "I think the short-term pain will pay off for the US in the long-term. It's a much-needed correction."
- "Initially, I would say negative, however, this could be a game changer and provide other countries, including the US, the opportunity to re-think the mfg of cameras and alike. Why couldn't we look at making these at home, in our own backyard?"
- "Immediate prices will rise. However, the competitive gap will be filled in by other low-cost countries. It would also spur innovation in the US technology sectors to increase productivity. Short Term: costs will increase. Market Impact: minimal. Long Term: more innovation."
- I think it's entirely too early to tell. Additionally, my views on the potential short and long term consequences are pretty different. It's possible that it will hurt in the short term, but be beneficial long term. I do think the short term impact will be higher prices, but long term is much harder to predict.
- "It really depends on your perspective. Overall I think it will hurt the economy as a whole with all the uncertainty around what the future holds. So, you could say this will have a negative impact assuming the industry will also be impacted. On the other side, I think it will be positive in the sense that the types of products and solutions we sell, are not made by the Chinese. Also, uncertainty and fear can lead to people purchasing more security equipment."
- "Everything seems to cause price hikes but Trump knows what he is doing. It will benefit us in the long run which few politicians care."
- "Initially, there will price escalation but we will adapt. Ultimately Trump and America will succeed and all will be well."
A smaller number of people felt that the impact on them would be minimal, with possibly a boost to other manufacturers and some saying that since they did not use affected products, the trade war would not have an effect.
- "I can't foresee how this will affect us in either direction."
- "It will affect some manufacturers and not others. It will possibly boost some US manufacturing."
- "We currently sell lots of HIK Cameras, because if we don't we lose business to those who do. If HIK is banned due to the internal chipset, then it is banned for everyone. This will lead to a change in the purchasing landscape for everyone. There is a chance that another brand could supplant HIK while it is out re-tooling with new chipsets. This, too, could change the complexion of camera products in the long run."
- "From what I've been told and what our company has done to mitigate this concern we no longer carry products that are impacted by the tariffs."
- "The industry as a whole is in an upward trend as technology supersedes manpower primarily due to cost. China's offerings in the surveillance industry may be at a cost reduction but the quality isn't at a level that compares to others. It's possible that the industry could see price increases due to the trade issue but its too early to tell. There are a lot of rhetoric and doomsday theories currently regarding the issue globally but may have a nominal effect on surveillance cost wise."
- "Doesn't affect us much outside of the US, Hikua is still going strong over here."
- "I believe that only the low end of the commercial market and the low and middle range of the residential market will see an effect from this; Meanwhile, suppliers from S. Korea are well positioned to fill this gap."
Negative for China and Positive For Others
Some felt that while China would be negatively impacted, with one respondent noting China would no longer be able to steal intellectual property. Many said others stood to gain as well, with US and Sweden-based companies cited:
- "Depending on which angle you observe, impacts will be negative for China and definitely positive for the US if they maintain the current course and keep it long enough for changes to take place and for the USA to feel them. In my opinion, the main reason why China industry gains such power and momentum is moving production in China by all USA companies, thus moving all the knowledge and expertise. For example, Huawei was small company until they've stolen all the technology from Cisco. And now they have the power to invest in R&D and influence the future development of telecommunication technologies. Same goes for HikVision, Dahua and all other brands that copied, still western technology and knowledge. Returning back that knowledge and investments in R&D will definitely prevent China companies to steal it further, and will definitely make an impact in China industry in the future. But for such changes to take place and industry to feel any effect, it'll take years maybe decades."
- "I think it will be detrimental to Chinese manufacturers and beneficial to non-Chinese manufacturers."
- "I believe it will draw attention to the industry. But if the attention is properly funneled to the US and Swedish based companies that are mostly used, only positive things could arrive from this."
- "As a VAR for both Avigilon and HikVision, I feel that it is a positive and negative, thus my Neutral vote above. There are certain customers who will not even consider HikVision and are not related to any Government entity, and others who feel that the cost factor is more important than the ban question. On the Avigilon side, some of those that do feel this is a factor are much more likely to approve the higher pricing of Avigilon over China vendors."
- "I am hoping it makes our clients rethink the cheapest product will do just fine. Maybe there will be some traction in delaying the race to zero."
- "Of course, components for devices assembled all over the world are manufactured there and that fact would be hard to escape. The alternative is to move manufacturing which also has an increased cost. Somewhat of a loss/loss unless the manufacturers had a forecast for this type of inconsistency."
No Lasting Effect. Back To Status Quo Before Long
A small number felt that there would be no lasting effect since the trade war was basically a "dog and pony show" and that an arrangement would be made "behind closed doors":
- "I say neutral because I don’t think the current bans and arguments will last long term. Wait two years and all will be back to how it was."
- "Tariffs will be rescinded after the dog and pony show."
- "I believe that eventually this conflict will be settled so in the long term the relationship will not change very much."
- "I think in the end, both the US and China, need each other despite what is being portrayed in the news or social media in general. Most likely they'll arrange a couple of meetings behind closed doors to come to some sort of arrangement."
China Will Drop Prices To Overcome Tariff
A few felt that China truly would find no bottom in their race to the bottom and would simply lower prices to accommodate the tariffs:
- "They will just lower the price even more to wash the tariff."
- "Someone either needs a camera or not. Also other sources from other countries. China will lower prices to stay competitive. They need their spy cams in the U.S."
- "Clients are prepared for a slight increase. It appears from past experience that the Chinese government will offset some of the tariffs."
Others WIll Fill The Gap
Some saw an eventual shifting as others stepped in to fill the role China had been playing, meaning minimal impact:
- "Manufacturing and sales will just shift to players less tainted."
- "I think there are more manufacturing options from outside of China. The industry will adapt and be fine."
- "I think it will have a minimal effect as suppliers and or installers will absorb some of the tariff cost. Although, if the tariffs go high enough for long enough, costs will go up to end user and that may slow sales, If Chinese equipment gets restricted or banned too long, equipment might start getting bought from other countries."
How this ends is hard to tell. For example, will the USA sanction Dahua and Hikvision? Will the US and the PRC's increasing tariffs and barriers to entry continue or increase?
While it is unlikely for the 2 countries to become allies any time soon, it is possible, but not guaranteed, that the hostilities could grow further splitting the countries, and the video surveillance industry, in the process, apart.
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