Six things to know about Trump’s tariffs on video games
Microsoft, Sony and Nintendo join forces to oppose Trump’s trade war against China
Only few things in this world could bring video games rivals Microsoft, Nintendo and Sony together. It’s like seeing Professor X and Magneto holding hands.
So what brought them together? President Donald Trump’s plan to tax Chinese imports, which includes a 25% tariff on video game consoles -- part of the ever-escalating trade war with China.
The three companies recently sent a letter to the US government requesting that game consoles be exempted by the next round of tariffs.
As 96% of all consoles are made in China, the gaming giants claim in the letter that Trump’s plan will hurt the industry as a whole. But what does it mean for consumers? Here are six things you need to know.
1) Will consoles become more expensive?
That’s the big worry, and the main argument the three companies are using. In the letter, they even gave it a rough number: “A price increase of 25% will likely put a new video game console out of reach for many American families…”
Let’s say, for the sake of argument, that the 25% price increase becomes a reality, and that would mean that the price tag of a standard PlayStation 4 will rise from US$300 to US$375 as soon as this holiday season.
Whether that actually happens is a whole other story. It’s worth noting that consoles are traditionally sold with thin profit margins, and sometimes sold at a loss early in their life cycle. But the PS4 and Xbox One are on the other end of the cycle, when more efficient parts and economies of scale kick in, making them cheaper to build. Whether they’re cheap enough for Microsoft and Sony to eat the added cost of tariffs is another question.
It’s especially timely because this comes as both Microsoft and Sony are getting ready to roll out next-gen consoles next year. Raising the price of an existing console might be tough for consumers to bear. But if the tariffs are still in place next year, we might instead see the new consoles debuting at a slightly higher price than their predecessors did.
2) Will games be more expensive?
You’d think games, being software, are immune to tariffs. But the three gaming giants say there will be a knock-on impact.
In their letter, Microsoft, Nintendo and Sony point out that, should console sales fall as a result of theoretical price hikes, then fewer gamers with consoles would mean fewer people buying games. And fewer people buying games is obviously bad news for game publishers, no matter where they're from.
Beyond that, they specifically called out the impact on indie game developers, whose games are often supported and promoted by the big console manufacturers (like, say, Nintendo’s “Nindies” YouTube streams highlighting indie games). In the joint letter, the three companies say that declining console revenue could lead to reduced support for those developers.
3) What else will be more expensive?
Playing a game isn’t just about the console or the games. You also need controllers for multiplayer, SD cards for more storage (on Nintendo Switch, anyway), charging cables and all sorts of other accessories. And guess what? Most of that stuff is made in China.
Specifically, according to the US government’s list last month, the US will tax products ranging from “infrared video game controller” to “discs, tapes, solid-state non-volatile storage devices, ‘smart cards’”. Additionally, set top boxes are also on the list, which means even products like the Nvidia Shield -- branded as a TV box instead of a game console -- won’t be able to escape Trump’s tariffs.
4) Why is the trade war hurting these companies so much?
Now you might be wondering: Hang on, Nintendo and Sony are Japanese companies. Why are they affected by the trade war between the US and China?
Well, for starters, 96% of all consoles are made in China. No matter where the company is from, the vast majority of their consoles are made in China. So, y’know, there’s that.
Beyond that, the US is an enormous market for both Nintendo and Sony. Nintendo released both the Wii and Wii U in the US weeks before Japan. Sony went even further: The PlayStation 4 came out in the US three months before it hit Japan. And in 2016, the global headquarters of Sony Interactive Entertainment was moved to California.
So if the US is such a key market, why can’t they make their consoles there? The same reason everyone else makes electronics in China. The three companies said in their letter that it would cause a significant supply chain disruption to move production to the US.
5) Will tariffs on China help the US games industry at all?
The three gaming giants -- one of which is actually American, don’t forget -- don’t think so.
Look, we’re all sick of Chinese knock-offs and clones. While President Trump’s tariffs are supposed to protect US intellectual property, gaming companies think the disproportionate harm caused by them to American consumers and businesses will “undermine -- not advance -- these goals.”
Just look at what’s happening with their goal of moving manufacturing back to the US. The Wall Street Journal recently reported that Nintendo is moving some Switch production out of China. Mission complete, right? Nope: Nintendo is moving manufacturing to Southeast Asia.
As for the overall impact these tariffs will have on the US, the three companies quoted a study by Trade Partnership, which says that the US economy will suffer a net US$350 million loss for each year the tariffs remain in effect. And the gaming giants warn that US consumers will be the ones paying for it.
6) How are people feeling about this?
Needless to say, nobody wants to pay more for products than they have to. Realizing the potential damage of tariffs on games, related memes are trending in the gaming community.
Chinese gamers are also paying close attention to this. Many netizens are shocked by how President Trump has managed to do the impossible… getting all the gaming giants on the same team.
“Gotta give it to you Trump. You have allowed the Big Three to present a united front,” a popular online comment said.