Riding the Import/Export Tariff Roller Coaster

If you’ve been working in the LED industry for the last few years, you’re used to change. We’ve all seen the various stages of tech improvements in the industry and we’re used to the routine. Each successive LED iteration offers improvements such as better CRI, more efficiency and longer life. Alongside tech advancements, improved manufacturing processes reduce prices.

As the LED market matures, prices stabilize and the rate of tech advancement slows to a more normal pace. Most of us feel we understand the current market—good tech, stable prices, and all is well.

And then come tariffs.

You’re probably wondering, what are tariffs? And how do they impact pricing?

A tariff is a tax on imports or exports between countries. The purpose of tariffs is to regulate trade, tax foreign products, encourage domestic industry, or limit trade deficits. The definition is straightforward, but tariffs themselves are more complicated. They can be product-specific or focus more broadly—like on steel and aluminum.

In the case of lighting, the first tariffs to impact prices focused on steel (25 percent) and aluminum (10 percent). Then came the 10 percent tariff on Chinese goods. Since most fixtures include steel and/or aluminum, it’s easy to see how this triggers a price increase. The more recent 10 percent tariff includes many items integral to luminaires—predominately made in China.

The result? It’s actually a bit mixed.

• Many manufacturers aren’t able or willing to absorb all increased costs, so they raised prices. Others decided to weather the storm and maintain existing prices. One manufacturer reduced prices in an effort to help sales.

• As of April 2019, it appears the dust is settling. In addition to typical inflationary price increases, many major manufacturers increased pricing by an additional 8-14% to help offset tariffs^ᴵ

• Widespread price increases are affecting the overall lighting market. Lighting is easier to value-engineer, so some customers are opting for less expensive options instead of higher-end architectural or decorative fixtures.

Is this going to get worse? No one knows. Additional tariffs—and price increases—are possible. A trade deal could happen and tariffs become history.

What happens next? We don’t know, but most of us are survivors of earlier price uncertainty.

Remember when gas prices increased in 2003? Or when copper prices tripled between 2004 and 2006? Granted, it’s not always caused by tariffs, but results are similar. When a trigger causes price jumps, copious amounts of news coverage happens and the sky appears to be falling. Then markets adjust to a new normal…and life goes on. 

No one enjoys the uncertainty of volatile price swings, but they happen occasionally. The best strategy is to hold on and wait it out.

^ᴵFor more information on manufacturer price increases visit edisonreport.com.