Nintendo, Sony, and Microsoft have co-signed a letter to the Office of the United States Trade Representative, arguing against the Trump administration’s proposed 25 percent tariff increase that would impact video game consoles.
The June 17 letter cites a report from Trade Partnership Worldwide which finds that 96 percent of all modern video game consoles are made in China and imported into the United States.
That report claims the proposed tariffs will cause an 18.8 percent price hike for American console sales, resulting in a predicted net $350 million annual loss to the U.S. economy.
“While we appreciate the Administration’s efforts to protect U.S. intellectual property and preserve U.S. high-tech leadership, the disproportionate harm caused by these tariffs to U.S. consumers and businesses will undermine–not advance–these goals,” the joint letter states.
The letter was written in response to a request for public comments on the USTR’s ongoing Section 301 investigation into China’s trade practices. “In accordance with the direction of the President,” as per the request’s summary, this would involve a proportionate additional 25 percent duty paid on nearly all products from China, which includes most of the consumer electronics on the market today. The tariffs could impact a bevy of U.S. tech companies, including Apple.
“The video game console supply chain has developed in China over many years of investment by our companies and our partners,” the letter continues. “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.”
Between the three companies, Microsoft, Nintendo, and Sony represent the majority of the worldwide video game console market, which accounts for roughly 28 percent of the total worldwide video game player base. Americans spent approximately $15 billion on video games and attached services in 2018.
Those consoles are traditionally sold at a per-unit loss, working on a “razor and blades” model; initially, each console represents a loss for its manufacturer, who hopes to make up the difference with games, services, and additional features like subscriptions.
The ninth generation of consoles is slated to begin at the end of next year with Microsoft’s Project Scarlett. The proposed tariffs could add significant further costs, both in import fees and raised prices on the consumer end, to a period that’s already going to be costly for the developers.
“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,” the letter states.
The letter ends with a request that the proposed tariffs not be applied to video game consoles, on the basis that they are “not the focus of the Chinese practices targeted by this investigation.”