In a surprise move today, the gaming giants of Nintendo, Sony and Microsoft have joined forces against current U.S trade policy.
The three console makers have published a memorandum of understanding, with all three companies specifically detailing the harm that the Trump administration's current U.S tariff policies against China - which would see a 25% tariff import increase against Chinese made products - can harm not only their businesses but the gaming industry as a whole.
The part all three companies object to is HTSUS subheading 9504.50.00, which covers video game consoles as being under the umbrella of the tariffs. Because parts of a gaming console are from Chinese made products or assembled in China, game consoles and PC's would be adversely affected by the tariffs. It is estimated, according to the letter, that 96% of all game consoles were constructed in China in 2018. While some, like Nintendo, have reportedly begun to limit the production of consoles in China as a precaution, the full economic impact of disrupting the supply chain established by these companies would be heavily detrimental in the long run.
“The video game console supply chain has developed in China over many years of investment by our companies and our partners,” stated the letter. “It would cause significant supply chain disruption to shift sourcing entirely to the United States or a third country, and it would increase costs—even beyond the cost of the proposed tariffs—on products that are already manufactured under tight margin conditions.”
The letter details three key bullet points that would adversely affect the video game markets; the stifling of innovation the industry, the loss of high-value jobs in the U.S, and injury to not only developers, manufacturers and retailers, but video game customers.
"Video games are a core part of the fabric of American entertainment culture. Two out of three households have at least one video game player, and 60% of Americans play video games daily. A price increase of 25% will likely put a new video game console out of reach for many American families who we expect to be in the market for a console this holiday season. For those purchases that do go forward despite tariffs, consumers would pay $840 million more than they otherwise would have, according to a recent study prepared for the Consumer Technology Association by the independent economic group, Trade Partnership."The same study by the Trade Partnership also cites that these new U.S Tariffs would see a net loss of $350 million in the U.S economy per year that the tariffs remain in effect, with the burden of this net loss on the backs of U.S consumers.
The letter also cites the U.S as a world leader in video game production, with over 65,000 workers employed across 2,700 developers and publishers across the country. The letter warns that a shrinking of console sales due to higher costs would not only lead to reduced sales of games, but have a "deleterious effect on the small and medium-sized businesses that make these games, and on the workers whom they employ."
All three companies do point out the need to combat China over intellectual property theft, which has seen a niche market of Chinese knockoff game consoles and even games being made for over a generation, but the current approach would be ineffective due to the relatively weak presence of such knockoffs in the gaming industry.
"Video game consoles are not priorities in any Chinese industrial policies, e.g. Made in China 2025." stated the letter. "Indeed, Chinese developed and branded video game consoles are virtually non-existent; one video game console that launched in 2016 has not been well received by the market. Moreover, because margins are tight due to the nature of our business model (as explained above), incentives to steal IP to make counterfeit consoles are exceptionally weak. Video game consoles are also relatively complex types of equipment, so the amount of effort and cost required to manufacture infringing or illegitimate products would not be justified by potential returns."
The letter is one of the few instances of solidarity between the three console makers, who have been in competition for a market-share of the gaming world for nearly twenty years.
What are your thoughts on all of this? Leave your comments below.