How United States-China Trade War Is Going To Affect The Gaming Industry?

The gaming industry has become the center of a major controversy surrounding the latest Trade War between China and the United States of America. There hasn’t been a week, if not a day, over the past year without some sort of breaking news about the tensions between both nations. Now, more than 12 months into the trade conflict, Washington and Beijing have both toughened their rhetoric and intensified the confrontation by expanding retaliatory measures to other areas, including video games.

 

The red flags started to be planted as soon as President Trump raised US import tariffs on $200 billion of Chinese goods from 10% to 25%, threatening to place additional tariffs on another $300 billion of Chinese exports, which would include video games back in May.

This made major console manufacturers like Sony, Microsoft, and Nintendo to be highly concerned about the future of the industry as a whole, the reason for this being that China is the main manufacturer of game consoles. With this in mind, Sony has actually warned that if a new round of higher tariffs goes into effect, the price for its game console may go up.

"We believe, and therefore have told the US government, that higher tariffs would ultimately damage the US economy," Hiroki Totoki, Sony's chief financial officer, told The Wall Street Journal. Totoki added that the company hasn't decided yet how it would handle additional tariffs, but said that it may have consumers share some of the cost. 

In addition to Sony. Nintendo and Microsoft sent a letter dated June 17 to the Office of the United States Trade Representative requesting that video game consoles be removed from the list of products covered by tariffs. The companies say a tariff on consoles would stifle innovation and harm the larger gaming ecosystem -- threatening jobs and injuring consumers, video game developers and retailers.

"While we appreciate the administration's efforts to protect US intellectual property and preserve US high-tech leadership," the three companies said in the letter, "the disproportionate harm caused by these tariffs to US consumers and businesses will undermine – not advance – these goals."

 

One of the most prominent examples of the effects of the Trade War belongs to the actions made by Nintendo. The company moved production of the Nintendo Switch hardware to Southeast Asia due to concerns over President Donald Trump’s proposed 25% tariff that would affect electronics made in China.

This move leaked the presence of two (then) unannounced hardware SKUs entering production. One of which would be aimed at core gamers and providing enhanced features, and the other became what’s now known as the Nintendo Switch Lite model that would primarily exist to replace Nintendo 3DS, aimed at a broader audience.

Of course, many finance professionals have declared that the move was rather smart from Nintendo’s part. However, Nintendo is also well-prepared to absorb the cost of the now infamous ‘Trump Tariff’. Unlike the Xbox or PlayStation, which typically sell at a loss for a number of years until manufacturing efficiencies are reached, Nintendo hardware has always made a profit early in the cycle.

Unfortunately, the same can’t be said about Sony. Chinese manufacturers account for the majority of PlayStation 4 production, and that's unlikely to change when the next generation PS5 arrives. Even worse, China's retaliatory measures suggest that there won't be a swift end to the trade war, with one analyst warning that Beijing might have already "all but abandoned hopes for a trade deal with the US."

As such, gamers shouldn’t be surprised if they find themselves having to pay nearly $1,000 USD for the next game console once it releases in 2020. This puts the company at a tough spot, because it would have to choose between taking an even steeper loss on the hardware and passing on the increased import tariffs to consumers by raising the price of the PlayStation console.

 

The effects of the war between two major nations can definitely be seen in the game industry. The Electronic Software Association (ESA) also believes that this could have a negative impact overall. "The video game industry is a national leader in job creation, trade, innovation, audience engagement, consumer protection and creative expression," an ESA spokesperson said in an emailed statement to CNET Wednesday. "Importantly, our industry also boasts a trade surplus for the American economy. Tariffs will erode innovation, decrease job opportunities for American workers and increase prices for consumers."

Considering all the facts our research has provided. We at NoobFeed believe that the Trade War could be a negative influence over the gaming industry. The consequences of the trade war will go beyond gaming, of course. With objects like PC components rising in price for the consumer. In the end, if the war continues on like this, there will be major consequences that might further affect the people’s wallets.
 

Sarwar Ron, NoobFeed
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