A surprise move: In July, when the most recent tariff round was first announced, the tariffs were only scheduled for 10%. However, now, the US government has finalized this round, announcing that “starting January 1, 2019, the level of the additional tariffs will increase to 25 percent.”
While 10% will start Monday, September 24, 2018, in just over 3 months, it will rise to 25%.
In this note, we examine:
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Charles, good reporting.
I'd emphasize that moving supply chains out of China is the smart move for security and video surveillance manufacturers. Tariffs, cybersecurity, human rights, dealing with the authoritarian PRC government, general branding, etc. all combine to make it prudent to manufacturer elsewhere.
It is interesting to note that supply chain moving is occurring for the past 2 years regardless of tariffs, even within China we see many manufacturers moving out of Shenzhen (where costs became high) into the second tier cities. Koreans and Taiwanese like Vietnam a lot, Chinese will probably not go there due to political tensions.
I also know of at least 2 large manufacturers opening assembly lines in India (for local market mostly, but could be used for exports if needed).
Hooray for inflation!
For EU, a recording device has an import charge of about 16% and a camera of 4.9%.
Adding a tariff to something that competes with what you can make yourself is not strange, but doing it in a fight like this doesn't help anyone.
If everyone was so loyal to local products the tariff wouldn't even be needed, so it's going to hurt everyone's wallet except for the company that was just not good enough to compete, and now is.
If everyone was so loyal to local products the tariff wouldn't even be needed
It's more like:
If China did not so heavily subsidize their industries and block out foreign companies
Nobody was forced to buy a chinese brand, and nobody forced other brands to stop innovating or trying to improve.
In some cases it's back to Blackberry and nokia 6310 times. A tariff helps them get at least some customers :)
Let me use an analogy to help you understand. You work at PG Security Systems. Let's say CN Security Systems opens next door to you in the Netherlands. But PRC Security Systems gets subsidies from their government and can sell for half your price. PG Security systems cries foul but I say "nobody was forced to buy from CN Security Systems" so stop complaining.
The only difference is here you are the one profiting from it whereas in the analogy above you are suffering from it. Neither are fair nor in accordance with the WTO.
I get your analogy John, but I don't agree.
I don't buy the cheapest groceries, but I buy from a company with a a good price and great service. They deliver into the kitchen, all products are fresh and prices are good.
Is there a cheaper option? Yes
Is there a more expensive option? Yes
I choose to buy based on service and quality.
Yes we sell Hik. Are we the cheapest? Easy shot for any distri to go the 1% lower, so no we will never be able to say we are the cheapest.
Are we the most expensive? No. Are we the best? I believe so.
Based on service and added value (only available behind login) we make the difference. Creating a custom catalogue in minutes or a specified ready to send offer for installers to send to prospective customers.
Serving the customers needs instead of thinking they will come to you anyway.
That's what makes a difference, and that's were a lot of the loosing companies went wrong.
IF we are talking about subsidies alone, the "fair" argument makes us look line whining losers.
Its a global economy and China has chose a much more favorable business structure to compete globally and Chinese manufacturers are taking advantage of it. The USA does not have a similar program and the labor restrictions alone are stifling.
A similar analogy here in the USA is that some states are more favorable as far as taxes go than others. Some states and cities even give tax abatement to companies to lure them in. Why cant I get tax abatement? I live in Oklahoma, however I dont want to pay state income tax, just like texas. Because thats the fair thing to do. Therefore Oklahoma should tarriff Texas to level the playing field??
Life isnt fair and neither is state or global economies.
China has chose a much more favorable business structure to compete globally and Chinese manufacturers are taking advantage of it.
They have 'chose' to violate the WTO over and over again.
It's like you and I decide to see who is stronger, agree not to take steroids, yet I load up anyway and then people congratulate me for 'choosing' a better structure than you.
The steroids is a bad example. If we are talking about subsidies alone, we can compete if we wanted to. Rather we decide to give ourselves a handicap. Tariffs are a handicap.
Here is a better example. The Tulsa Golden Hurricane play in the same football league as the Oklahoma Sooners. However, the Oklahoma Sooner gets massive state funding which means better facilities, better paid coaches, which ultimately means better recruits, which means more wins. Tulsa will never be able to consistenly complete unless they choose to become a public school to receive more state funds and specifically spend that money on their football program.
Because of this, should we start the game with 25 points up on the board to the Tulsa Golden Hurricane before a play is even made?
If we are talking about subsidies alone, we can compete if we wanted to.
Yes, you've said this before you want us to match them. Everybody should subsidize surveillance cameras so Nelly makes more money :)
Tariffs offset the subsidies / advantages. Who is being handicapped here? You who sell Chinese cameras...
I want us to be subsidized so we will be encouraged to manufacturer in the USA like China is. Tarriffs do not encourage, all they do is handicap.
A handicap is a sports term which gives another player who has more advantages than a weaker player. You handicap the stronger player to level the playing field by giving the weaker player a head start or more points or whatever before you even begin playing. We are acknowledging that we are the weaker player by handicapping China.
Incorrect information, tarics on security equipment into Europe have being dropping recently:
Complete recorders had a high of 13.9% now 8.7% (taric 8521900020)
Cameras had a high of 4.9% now 2.5% (taric 8525809100)
Do you think it was a Hik cam that recorded whatever happened with those Russian women and the Donald? Let's hope his iPhone is never compromised or we are all going back to Blackberry.
In all seriousness, my prayers are with all the victims of this trade war. From the US integrators who make their living installing in K-12, to the distributor sales reps, to the poor factory workers who are hardly paid enough to begin with, I pray for them all. A stroke of a pen carries a lot of weight in this world.
Plenty of cameras to choose from that are affordable and not from China, so I'm not worried about K-12 integrators.
The U.S. Is a big market, but there are plenty of green fields out there for Chinese products. The USA is ~12-13% of the global surveillance market, China is ~40%, few CN manufacturers rely solely on the USA as an export market, for most of them these tariffs will be a small pot hole in the road.
It will take China some time to adjust, but they will just move elsewhere, the U.S. Based channel players are the ones that will suffer more, these tariffs will not harm China as much as they will harm American distributors and integrators.
I agree with Sean, better to offer subsidies than impose tariffs.
#3, if this is just a 'small pot hole' why is Hikvision's stock price down 35% since the tariffs and other US action was raised in the past few months?
hikvision stock had rougher times before too, regardless of Trump. If you look at the whole graph you will see it also dropped 40% in 2015, before Trump. The point i am referring to is that Hikvision is big enough, has enough resources and other growth markets to overcome the US tariffs. for them this is no doubt a blow, but far from a death blow.
far from a death blow.
'death blow' is your term, don't imply that is mine. You were the one who claimed it was a 'small pot hole in the road' and that was what I was responding to.
We will see how much or little of a blow it is but certainly investors are not treating as a 'small pot hole in the road'.
Btw, the 2015 time frame is more complicated than you paint. It was not just that it dropped, it is that the stock price soared by an equal amount the month before. I've charted out that data below:
The end of the period corresponds to the July 2015 China stock market crash. Why it first went up so much right before then only to crash back down just over a month later, I do not know. Anyone with knowledge of this period, please share.
One other thing, the sharp single-day drop shown in 2017 is almost certainly a google error, not accurately reflecting a stock split, in case anyone is wondering about that one.
Agreed. Tariffs will hurt installers and customers.
But I say no subsidies either.
FYI, on the same day the US announced these tariffs, Avigilon boasted on Twitter that one of its latest products is "proudly manufactured in the USA". One sign of non-Chinese manufacturers taking advantage of this situation.
In Europe we have always had duty on recorders and cameras that impact the sell out price in local markets. Not quite 25% but we used to have 13.9% on recorders up to recently.
The interesting thing that has happened this year is that the duty % for importing into Europe has dropped considerably for recorders and cameras and most likely the majority of electronics.
A lot of importers into Europe when the duty % was high on recorders would get Dahua/Hikvision to ship main board and case as separate product so to avoid the 13.9% duty as the product wasn't complete when being imported and thus then only pay 4% (this same taric is now only 1%)
So maybe USA importers can get around the high duty by shipping in-complete product and then assembling the products in the USA!
But what may affect the above is that the big 3 in China are beginning to put a price premium if you want to ship MB and Case as separate products as they claim it is more work for them. Yes it is more complex for them but the price increases they are quoting currently is not a true reflection!
Those importers are exposed to retroactive tax payment demand, as they are not exempt from tax payment due to the local assembly.
If a BTI is in place for what you are and how you are importing goods you are covered. Any large importer would have BTI's in place for goods being imported. Those who do not have BTI in place would have to argue the case.
Around 2010 I had a idea to create a EU hub for serving DVR manufacturers and importers for assembly and repairs, based on the idea of profiting some of the 15% tax. I was advised by a lawyer that this couldn’t be done legally in the EU - unless you have modified the product to have different purpose, you should pay TAX just as it was imported assembled.
It could be a grey area but every country based on there own views can issue BTI's on products that are in that grey area of perception from a classification prospective. BTI's are issued to the actual company that is importing.
A recorder main board by itself can do nothing and can't function without all the bits of the case so this to most is enough for the lower classification.
While we save some money on expensive devices you don't really on the low cost recorders and on the other hand you are employing local employees to do the assembly so there is a large argument you are adding more to the economy be having local assemblers.
I just got to thinking that the Alibaba buyers are really gonna get a slap in the face now when they find out their camera is now 25% more than they originally thought
25% Tariff only apply to DVRs, NVRs or only on cameras?
Tariffs are going to hurt our business, and hurt our American employees.
This 25% tariff hurts installers and companies like mine. What happened to capitalism and free markets.
Tariff = tax
what about tax rebates instead of tariffs?
if you manufacture in the US you can get 25% tax rebate, instead of taxing you 25% if you bring from abroad
Hikvision USA sent out an email to dealers this week about the tariffs, downplaying impact, nothing that they have significantly increased inventory in the US to avoid the tariffs impact for the time being:
Other elements worth noting:
Access control products also fall into the tariff categories and will affect them as well. Anything that functions as a time clock (like a card/fingerprint time and attendance terminal) or data storage device like the memory chips in access control panels may also be affected.
Does anyone else see this?
