As part of his ongoing trade war with China, President of the United States Donald Trump plans to impose a 25 percent tariff (read: import tax) on $325 billion worth of Chinese goods coming into America — what he calls “Phase 2” of his plan. (Phase 1, if you missed it, was a 25 percent tariff on an estimated $250 billion worth of Chinese products, which is already in place.) This new round of tariffs includes video game consoles, which would have a disastrous, rippling effect on the entire games industry, according to a joint letter sent by Microsoft, Sony, and Nintendo to the Office of the United States Trade Representative.
The letter, sent earlier this month but only now coming to public light, details the circumstances through which a 25 percent import tax on video game consoles would damage all three major hardware manufactures, as well as everyone else related to games in the United States. After establishing the enormity of the video game industry, as well as the huge percentage of said industry that these three companies are responsible for, the letter details how even the slightest change in a console’s manufacturing pipeline can be enormously expensive.
“In 2018, over 96% of video game consoles imported into the United States were made in China,” the letter reads. “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 also points out that, unlike conventional computers, video game consoles use an enormous amount of bespoke parts, which further complicates the situation. “Tariffs would significantly disrupt our companies’ businesses and add significant costs that would depress sales of video game consoles and the games and services that drive the profitability of this market segment.”
Said depressed sales would be caused by higher prices at retail, which would be unavoidable under a 25 percent import tax, according to the letter. “Given that retail margins on video game consoles are generally very tight,” the letter says, “we see no possible reasonable scenario for retailers other than passing tariff costs down to consumers.”
“A price increase of 25% will likely put a new video game console out of reach for many American families,” the letter states elsewhere. This downturn in sales would lead to a reduced market for games and console-based services, which “would asymmetrically harm small and medium-sized software developers across America.”
The Trump administration giving two hoots about small businesses is a laughable idea, but Nintendo and friends’ argument is a good one. “As of 2018, there were over 65,000 workers employed at over 2,700 video game software publisher and developer companies across the U.S.,” the companies state. “These are high-skilled and well-compensated jobs that are not in any way immunized from the ramifications to software sales of stalling growth or shrinkage in video game console sales.
“Because console makers are publishers of independent games as well,” the companies continue, “providing manufacturing, marketing, sales and/or distribution assistance for the games made by these small developers, declining revenues for console makers could translate into reduced support for developers.” This, they argue, would ultimately result in the mass relocation of US-based development talent to other markets, which would not only hard the video game industry, but the total net value of the United States as a world technology leader.
Later in the letter, as Nintendo, Sony, and Microsoft try to establish that weaker sales would result in less technological innovation, the letter takes this really weird little digression into how each company has innovated over the past X number of years. Microsoft, to its credit, lists the wide adoption of its Kinect technology by researchers and engineers the world over, as well as the development of its truly, actually important Xbox Adaptive Controller. Both of these things are legitimate claims to technological fame, and are proof that research spent on video game applications can have wide-reaching impacts on science as a hole.
Sony, meanwhile, brings up the PlayStation 3’s infamous Cell processor, which was utilized in a giant distributed computing project called Folding@Home, which (in layman’s terms) used idle PlayStation 3s to crunch numbers for cancer research. This was also a very important and meaningful benefit to global science!
But then, Nintendo claims that the Game Boy Camera is why smartphones have front-facing cameras??? Emphasis mine:
“Outside of entertainment,” the letter says, “Nintendo is often credited with making the front-facing camera a ubiquitous feature on today’s smart devices through its Game Boy camera accessory.” I’ve been working in the games industry for a decade, and have been reading industry publications for a decade further, and I have never in my whole life ever heard someone make this assertion. It is easily the most hilarious thing I’ve ever read in a letter to the government about the disastrous potential impact of a proposed tariff.
Anyway, the three companies conclude their plea for mercy by pointing out that, hey actually, video game consoles don’t have anything to do with what the United States is upset with China over, namely the purported exploitation of American intellectual property. “Although we appreciate the Administration’s goal of strengthening the protection of IP in China, video game consoles are not the focus of the Chinese practices targeted by this investigation,” the letter reads. “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.”
Whether the Trump administration will listen to Nintendo, Sony, and/or Microsoft, or anyone else about anything, ever, is anybody’s guess.