Sony, Microsoft And Nintendo Send Tariff Warning To Trump Administration – Forbes

A new round of proposed tariffs from the Trump administration could have disastrous impacts on the video game industry, console manufacturers Sony, Microsoft, and Nintendo warned in a recent letter. Video game consoles and tabletop games are included on a not-yet-finalized list of goods from China that would be subject to the proposed 25% import tax. The vast majority of consoles are manufactured in China and would thus be subject to tariffs.

The manufacturers warn that a new tax could affect 220,000 United States video game jobs at large and small businesses:

Economically, the video game industry contributes substantially to the U.S. economy, and its year-on-year growth is impressive. The U.S. video game industry generated total revenue of $36 billion in 20172 and $43.4 billion in 2018,3 reflecting over 20% in growth. This industry directly and indirectly employs more than 220,000 people. Ninety-nine point seven percent (99.7%) of video game companies qualify as small businesses and can be found in each of the fifty states; many develop software for video games across the range of platforms, from PCs to mobile, including the video game consoles that we manufacture, and are an integral part of the booming app economy.

The statement notes that video game consoles are complex to manufacture and typically sold at low margins, meaning that it would be difficult to move production to the United States or to modify the current supply chain:

In 2018, over 96% of video game consoles imported into the United States were made in China.9 The video game console supply chain has developed in China over many years of investment by our companies and our partners. It would cause significant supply chain disruption to shift sourcing entirely to the United States or a third country, and it would increase costs—even beyond the cost of the proposed tariffs—on products that are already manufactured under tight margin conditions. Each video game console comprises dozens of complex components sourced from multiple countries. A change in even a single supplier must be vetted carefully to mitigate risks of product quality, unreliability and consumer safety issues. Tariffs would significantly disrupt our companies’ businesses and add significant costs that would depress sales of video game consoles and the games and services that drive the profitability of this market segment.

It’s worth noting that Nintendo has been hedging its bets here, moving some production to Southeast Asia as a safeguard against the tariff threat. But the companies warn that even when you account for tariff revenue, the net loss from new taxes to the United States economy could be $350 million:

Video games are a core part of the fabric of American entertainment culture. Two out of three households have at least one video game player12 and 60% of Americans play video games daily.13 A price increase of 25% will likely put a new video game console out of reach for many American families who we expect to be in the market for a console this holiday season. For those purchases that do go forward despite tariffs, consumers would pay $840 million more than they otherwise would have, according to a recent study prepared for the Consumer Technology Association by the independent economic group, Trade Partnership.14 That study also noted that “[e]ven after accounting for new tariff revenue, the result is a net $350 million loss for the U.S. economy for each year the tariffs remain in effect, with the burden carried by U.S. consumers.”

Video games are far from the only industry affected here–even within the gaming space, some within tabletop gaming have warned that new taxes could effectively cripple the booming tabletop industry.