Today, is the beginning of the trade war between the U.S. and China, with our industry caught in the crosshairs.
One would think that U.S. lighting companies like Cree, would be helped by these tariffs. Not so. In an article published 5 JUL in the Wall Street Journal, Cree’s Greg Merritt states the fallout from tariffs will lead to “reductions in our R&D spend, our expansion of manufacturing facilities, and therefore, the development of new cutting-edge” American intellectual property.
Cree builds some components in their facility in Durham, NC. Those components are shipped to China where they are assembled and packaged into housings and some of those housings are then shipped to their Racine facility, where they are finished. The new rules will call for Cree to pay a 25% duty when they come back to the U.S.
The way we understand the tariff law, companies that import finished goods–and provide no US content or labor–are not subject to the tariffs. In an 11 MAY 2018 letter to U.S. Trade Representative Robert Lighthizer, Tim Licitra, Executive Director of the IES stated, “our members are concerned that the proposed tariffs on components can be circumvented by simply increasing imports of processed or finished LED lighting goods not subject to the tariffs.” Read the letter here.
Companies like Nichia, based in Japan, and Seoul Semiconductor are gearing up to capitalize on the tariffs. Read Seoul’s plans, first published on the EdisonReport, here.
With the overall general economy strong, we expect the tariff war to continue for at least a few months, as the U.S. feels they are negotiating from a position of strength. However, the lighting economy is not strong, in fact, it is weak. In addition, we already have capacitor and other component shortages affecting us (because of the overall strong economy). Throw in 25% tariffs and our industry could suffer greatly.
Unintended consequences, indeed.