The Unsettling Impact of Tariffs on the Channel

It has been more than a year since tariffs were placed on a number of goods manufactured in China, including printer and MFP components, parts and supplies. On September 1, 2019, another list of products is scheduled for added tariffs of up to 25%, including printers, copiers, MFPs and fax units. While some products have been removed from this upcoming list, and tariffs on some of the products on the list have been delayed until December, copiers, printers and MFPs and their components sold and serviced in the imaging channel remain on the Sept. 1 list.

301 Tariffs Imaging Channel
Imaging channel products affected by tariffs. (Note: “nesoi” = “not elsewhere specified or included.”)

The trade war and resulting friction between the United States and China, along with uncertainty in Europe surrounding the upcoming Brexit deadline, has had mixed effects on the major manufacturers in the industry. With financial results through June 31 announced, Canon, Ricoh, and Konica Minolta reduced their full-year forecasts while Kyocera and Epson maintained their current outlooks. The weak Chinese and European economies were referenced as reasons for the current financial results and the new forecasts. Interestingly, the OEMs pointed out a strong United States economy.

This begs the question: have the tariff policies of the current U.S. administration affected business in the U.S. imaging channel? Additionally, when might the tariffs have a negative effect on wholesale and retail pricing, and what impact might this have on the end customer purchase decisions?

The answer to the first question continues to be difficult to gauge. Although copier and printer parts, components and supply items made in China have been tapped with tariffs since last year, there is a lack of reporting as to whether these have had any impact on increased supply, parts and service pricing.

In general, printer and MFP OEMs don’t appear to have adjusted prices or fees, and have communicated to channel partners they are committed to keeping their prices competitive. Additionally, the recent devaluation of the Chinese yuan will most likely have some form of mitigating effect on possible price increases.

To avoid tariffs, almost all OEMs have announced the manufacturing of printers and MFPs sold to the American market has been moved out of China to countries such as Vietnam or Thailand. Canon had already moved some of its manufacturing over the past few years, and Ricoh, Sharp, and Kyocera have recently announced their intent to move the manufacture of their printer and MFP products soon. According to U.S. trade statistics, more than half (52%) of multifunction printer imports are manufactured in China. With the implementation of the September 1 tariffs, more American market production could be shifted outside of China.

When it comes to increased pricing, OEMs have said they will continue to monitor the tariff situation closely and notify their partners as soon as possible if any changes occur. So, while it seems tariff costs have not currently been passed along to resellers and ultimately to customers, the question remains whether these costs will find their way into the supply chain. Should the U.S.–China trade conflict become long term what, if any, chilling effects might that have on future business in the U.S. imaging channel?

Looking at the tariffs as a whole, J.P. Morgan estimates they will cost the average American consumer around $1,300 per year. That is about 2% of the median household income as reported for 2017. If consumer spending begins to decrease due to tariff costs, businesses may be forced to reduce spending, employment costs, and other expenses, particularly around print. If the Great Recession of 2008 taught this industry anything, it was that an economy after emerging from a financial adjustment does not necessarily rebound to the same type and use level of office technology used previously.

The highly competitive imaging channel will likely be loath to institute any type of price increases due to tariffs. From the OEMs to the resellers, the market is a smaller pie than ever, with new document communication technologies continuing to push printed page volumes down. However, if the tariffs become a long-term situation, strategies need to be considered now on how to react, price, bill and reduce other costs so that the hard-fought profits still available in the imaging market do not disappear.

The trade war between the United States and China is far from over and current negotiations create new uncertainty. There is hope that negotiations will result in positive movement and removal of the tariffs soon — but hope is not a strategy. Paying close attention to what is happening and developing realistic plans around pricing adjustments, fee implementation or other ways to absorb cost increases due to the tariffs is a wiser strategy.

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Tom O'Neill
Thomas O’Neill, an analyst for BPO Media, is a 35+ year marketing and product strategy professional in the enterprise imaging and print industry. Beginning with positions in sales and training management, for the past 24 years he’s held director and manager positions at Canon, Océ, Lexmark and Minolta. He has extensive experience in hardware and software product marketing, strategic product planning and sourcing, solution sales, marketing content creation and strategies, branding strategy and vertical marketing strategies. Contact him at tom@bpomedia.com.
Tom O'Neill

Tom O'Neill

Thomas O’Neill, an analyst for BPO Media, is a 35+ year marketing and product strategy professional in the enterprise imaging and print industry. Beginning with positions in sales and training management, for the past 24 years he’s held director and manager positions at Canon, Océ, Lexmark and Minolta. He has extensive experience in hardware and software product marketing, strategic product planning and sourcing, solution sales, marketing content creation and strategies, branding strategy and vertical marketing strategies. Contact him at tom@bpomedia.com.