Trade wars often create economic losers on both sides of the battle ground. On the front lines of the fight for sustainability, China has taken a manufacturing leadership role with products such as solar panels and energy-saving Light-emitting Diode (LED) technology. Tariffs on Chinese products will most likely increase costs and slow the adoption of these “green” cleantech products.
On the lighting front, the American LED Alliance (https://americanledalliance.com/) and Buy American Act (BAA) LED lighting manufacturers may win with Trump’s tariffs on China. The win would simply come because the vast majority of LED diodes and LED fixtures are currently made in China. The companies that make lights in America will benefit if competing imports increase in price.
The Buy American Act has a two part test consisting first of substantial transformation of material in the U.S. and second of having over 50% U.S. components. One challenge is if the final tariff does not distinguish between the LED diodes and the finished goods from China. Higher cost Chinese diode components may penalize American manufacturers, because the diodes are almost all made in China with some producers in South Korea.
Companies like Independence LED Lighting are some of the few authentic BAA Compliant LED Manufacturers relative to the global universe of LED manufacturers. The authentic BAA manufacturers are most likely agile in their ability to adjust their manufacturing to use diodes other than from China, but changing component sources in any manufacturing process creates friction in the system. Tariffs on finished goods vs components seems like a prudent path for the Trump Administrations in order to stay on strategy for American job creation. Turning cost-effective components into finished goods in the U.S. is the classic recipe for economic success.
ACTION ITEM: If you own or manage a business or facility, connect with an LED company ASAP, before the tariffs impact the cost of the energy-saving technology. You can lock in pricing on proposals.
Step 1: Search Google for terms like, “Made in America LED Lighting”
Step 2: Ask for a call to review your specific lighting needs.
Step 3: Ask for a savings analysis with Return on Investment (ROI) calculations before you commit to buying any LEDs.
Here is some added insight from LightED Magazine, indicating that the Trump Administration may not be thinking through the difference between tariffs on LED component and finished goods.
LightED Magazine Article title “LED Products on China Tariff List” (http://lightedmag.com/led-products-on-china-tariff-list/)
The U.S. Trade Representative released a proposed tariff list of Chinese products on Tuesday, April 3. 1,300 products are on the list, including LED’s and LED parts.
President Trump announced in March that the U.S. would impose approximately $50 billion in response to a trade deficit the U.S. currently has with China, along with a response to China’s policies that force American companies to transfer technology and intellectual property to Chinese enterprises. These policies bolster China’s stated intention of seizing economic leadership in advanced technology as set forth in its industrial plans, such as “Made in China 2025.”
China has responded to the tariffs by imposing their own, which has led to what many are calling a “trade war” between the two countries. On Wednesday, April 4, China announced that it will match any future tariffs equally.
The initial list of items for tariff includes “Harmonized Tariff Summary” number 85414021, which simply states “Light Emitting Diodes (LEDs).” Item number 84519000 on the list of items for the U.S. tariff is “parts of diodes, transistors, similar semiconductor devices, photosensitive semiconductor devices, LEDs, and mounted piezoelectric crystals.” Many lighting companies headquartered around the world use Chinese factories to manufacture LEDs and then import the products. Additionally, a number of small Chinese-based LED companies have appeared in the North American market, and they are driving LED prices down.
Other items on the list, including dozens of steel and aluminum products, are insulated copper wire, electrical controls, panels and boards for electrical controls, and switches for making connections to electrical circuits.
You can read the allegations against the Chinese government and see the complete list of items that face a tariff here.