The US and China have been engaged in a trade war for months now, but the two nations have thus far managed to avoid a new round of mutual escalation. While the United States has threatened to raise tariffs on a range of Chinese goods from 10 percent to 25 percent, the Trump Administration hasn’t actually done it yet. According to Sony’s Senior General Manager of Finance Department and Corporate Planning, Naomi Matsuoka, the company may have no choice but to raise console prices in the United States if the tariffs go through.
In the quote below, the reference to “Level four” tariffs refers to the fact that this would be the fourth set of tariffs imposed by the United States in the ongoing trade dispute. These are typically referred to as “tranches” (a tranche is defined as “a portion of something, especially money”). Tranche 4 tariffs are expected to impact $250B worth of Chinese goods if they go into effect. Tranches 1-3 previously covered goods collectively worth $250B, so the 4th tranche represents a substantial expansion in terms of the number of goods to be tariffed, as well as a significant increase in the tariff amount.
When asked about the potential impact of tariffs on Sony’s PS4 business, Matsuoka responded with the following:
Well supposing hypothetically, the Level four tariffs are actually decided, so this is based on the assumption that it will take place up to the — it’d be up to the timing of that as well as the specific conditions attached. But supposing — and we are not currently assuming that, but if this is actually invoked, what will be the impact? What we are foreseeing is that in Game & Network Services, hardware business will be affected… higher tariffs on these products will actually impact distribution and employment and consumers in the United States will be a negative for the U.S. economy as such.
So our subsidiary are working with the industry associations and government associations, approaching the government where we have sent the opinion leaders to the government. And as of now, we are of course contemplating these actions based on the potential risk for Level four and for all the products affected, for instance the changing of the production sites or passing through of the prices to the market or changing the continuous sales structure.
So, we are considering risk ahead of the current actions if this happens. And once the decision is made to introduce Level four, all the contributing actions will be put to force to mitigate the negative impact.
Nintendo, Microsoft, and Sony have all previously asked the Trump Administration not to raise tariffs on consoles, noting that the machines are largely built in China and that moving their supply lines would be difficult to impossible. That may be true for some companies more than others, however, as Nintendo has already said it’s moving production of the Switch Mini to Southeast Asia to avoid potential tariff entanglements. It’s also possible that it’s easier with some product lines as opposed to others — Sony and Microsoft may have long-term production contracts on the PS4 and Xbox One that are difficult to break, or the two companies may face short-term problems with supply chains and the associated costs of setting up shop in a new location.
As for the actual trade negotiations themselves, there has been a little movement on that front. China said three days ago that it would begin larger purchases of some farm products and the US and China trade delegations met on Wednesday, July 30 for several hours. The meetings did not resolve any outstanding issues, however, and the ongoing trade war continues with “No deal in sight” according to the New York Times. The White House called the talks “constructive,” while the Chinese state news media characterized the talks as “frank, efficient, and constructive.”
This was the first formal meeting of the two sides since talks fell apart three months ago. President Trump has tweeted that there may be little chance of a trade deal before the 2020 election is complete. If the Tranche 4 tariffs actually go into effect, we may see the impact on consoles from multiple manufacturers and different product generations, depending on whether Sony, Microsoft, and Nintendo can secure a waiver. The trade talks will resume again in September.