Home modems, routers hit by U.S. China tariffs as 'smart' tech goods escape

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24/09/2018 12:00

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    By David Lawder
    WASHINGTON, Sept 24 (Reuters) - U.S. tariffs that hit some
$200 billion worth of Chinese products on Monday spare many
high-profile consumer technology items such as "smart" watches
and speakers, but the less flashy home modems, routers and
internet gateways that make them work weren't so lucky.
    Consumer tech industry officials and the U.S. Customs and
Border Protection agency say they expect billions of dollars
worth of these products, including those designed for home use,
will be subject to the 10 percent tariffs activated on Monday.
    The move will effectively create a two-tiered tariff
structure for consumer internet, with many products, such as
Fitbit  FIT.N  fitness trackers, Apple Inc's  AAPL.O  watch and
Amazon.com Inc's  AMZN.O  Echo smart speaker being favored over
routers and internet gateways from Arris International  ARRS.O ,
Netgear  NTGR.O , D-Link  2332.TW  and others.      
    "We're operating under the assumption that the tens of
millions of devices that deliver high-speed internet into
consumers' homes will be impacted by these tariffs," said Jim
Brennan, Arris' senior vice president of supply chain, quality
and operations.
    "It feels anti-consumer because our devices are what enables
the core of consumer tech," Brennan told Reuters.
    The modems, routers, switching and networking gear that keep
the internet functioning were not included in a newly created
U.S. tariff code that was exempted from the latest China
tariffs, a spokesperson for the U.S. Customs and Border
Protection agency said.
    The agency has made no distinction between consumer-use
modems and routers and the commercial network equipment used by
data centers and broadband internet providers. 
    Most new internet-connected devices had been lumped into a
broad category in the U.S. Harmonized Tariff Schedule, 85176200,
"Machines for the reception, conversion and transmission or
regeneration of voice, images or other data, including switching
and routing apparatus."
    The catch-all category saw $23 billion in U.S. imports from
China and $47.6 billion from the world last year. It was the
largest component of U.S. President Donald Trump's latest
tariffs targeting Chinese goods.
    The U.S. Trade Representative's office had said it was
breaking out items such as smart watches, fitness trackers,
Bluetooth audio streaming devices and smart speakers into a new
subcategory that would be exempted, but it gave few details.
    According to a notice posted by the U.S. International Trade
Commission, computer modems would stay in a separate
sub-category, while "switching and routing apparatus" would be
put into a new sub-category. Neither of these sub-categories
were granted exemptions from the tariffs.
    "Although we have not had occasion to issue rulings on the
scope of a provision for 'switching and routing apparatus,' we
agree that as a general matter, modems, routers, and networking
equipment will be subject to the remedy," a Customs and Border
Protection spokesperson said late on Friday, referring to the 10
percent tariff.
    It was not clear how much of the $23 billion in Chinese
imports within the catch-all category could escape tariffs, but
a Reuters review of industry data suggests the share could be
small.
    U.S. Census Bureau data has not yet captured the volume of
annual imports from China — or any country — of the goods that
will be exempt.
    But the Consumer Technology Association estimates that the
U.S. market for fitness trackers, smart watches, smart speakers
and wireless earbuds and headphones was $8.2 billion in 2017,
with forecast sales of $11.6 billion for 2019.
    Even if China produced a majority of those goods, exemptions
would only apply to a fraction of the $23 billion category.
    CTA has forecast direct sales of modems and routers to
consumers at $2.3 billion for 2019, up from $2 billion in 2017,
excluding the products supplied directly by cable and broadband
internet providers and equipment used in data centers and other
infrastructure outside the home.
    But the group argues that consumers will bear the costs of
the tariffs, even if their service provider buys the modems. 
    "Overall, access to the internet will get more expensive,
mobile plans will get more expensive, and connected devices that
go to your smart phones will get more expensive because
everything speaks to each other," said Izzy Santa, director of
strategic communications for CTA.

 (Additional reporting by Jason Lange in Washington and Stephen
Nellis in San Francisco; Editing by Michael Perry)
 ((David.Lawder@tr.com; +1 202 354 5854; Reuters Messaging:
david.lawder.thomsonreuters.com@reuters.net))