National Consumers League

The differential impact of tariffs on Chinese tech

Earlier this spring, the Trump Administration announced plans to follow up its tariffs on imported steel and aluminum with 25 percent tariffs on approximately $60 billion worth of imports from China. News about a potential “hold” notwithstanding, one area that hasn’t gotten enough attention is the impact of these potential tariffs on the digital divide generally, and low-income consumers and communities of color specifically.

First off, let’s acknowledge that if you have a smartphone in your pocket - regardless of brand - chances are that it probably has one or more components in it that originated in China. For example, most smartphones require the use of so-called rare earth materials in things like screens, batteries, and other components. Estimates are that China controls 90 percent or more of market for rare earth materials. China is also the source of components make modern smartphones the technological marvels they are.

While the devices themselves weren’t on the list of 1,000 products announced by the U.S. Trade Representative (USTR) in April, smartphone components like touch screens, batteries, and printed circuit assemblies were. So while your next iPhone won’t come with a 25 percent price hike, components in that phone that are hit by the tariffs mean that phone prices could increase more than they otherwise would without the tariffs. In addition, because components like touch screens are on the list, getting that cracked iPhone screen fixed at the mall could be even more expensive. Cell phone bargain-hunters could get hit, too. Most cell phone companies collect older phones from their customers to repair, refurbish, and ultimately resell. Since that process can require the use of imported Chinese components, the price of those “certified pre-owned” phones that most carriers offer at a steep discount could go up. Finally, many of the components that go into modern networking equipment -- the stuff that big cell phone carriers are using to build next-generation 5G networks -- are affected by the tariffs. That will drive up carriers’ network build-out costs, which will ultimately be passed along to consumers in the form of higher monthly service charges.

Now, if Apple decides to pass the higher cost of their phones’ components along to consumers, not many will shed a tear for the Apple fanboy that has to pay more for their Apple iPhone X (starting price: $999). However, consumers at the lower end of the income spectrum -- consumers for whom their smartphone is their primary way of accessing the internet -- will feel the pinch, and that’s something that should worry those of us who believe closing the Digital Divide is a key public interest priority.

According to the Pew Research Center, 24 percent of African-American and 35 percent of Hispanics do not use broadband at home, but own a smartphone. In addition, 31 percent of consumers with annual incomes below $30,000 depend on their smartphones as their primary means of broadband access. A key component of obtaining broadband access for those communities will be the cost of a device. Even a small increase in the price of a smartphone is likely to reduce adoption rates among communities for whom the smartphone is the sole internet access device. Not being able to afford a phone affects low-income consumers’ ability to access a range of important social services, employment opportunities, support networks and other critically important content.

While protecting U.S. manufacturing jobs -- one of the Administration’s rationales for the tariffs in the first place -- is a laudable goal, tariffs are a blunt instrument to try and do so. The impact of the proposed tariffs on vulnerable populations and the digital divide needs more attention. The USTR should take these downstream consumer impacts into account as they consider a final list of goods that will be hit by the tariffs.