CEDIA, in conjunction with Greenberg Traurig, presented a webinar on the topic of tariffs, examining possible outcomes of the proposed tariffs and how trade relations may affect the residential and commercial AV industries. The CEDIA webinar also provided insights and strategies for manufacturers and integrators in light of these proposed tariffs.
Tariffs Affecting the AV Industry
Robert Mangas, shareholder in the firm’s Federal Government Law & Policy group, provided background on the different tariffs proposed by the new U.S. administration. He remarked that there “…will be a flurry of activities before things settle [down].” From his perspective, the major tariffs that would have an impact on integrators and manufacturers include the additional tariff of 10% on China, as well as the steel and aluminum tariff of 25%. Mangas also noted that certain tariffs, such as the ones on semiconductor chips, would affect business on the commercial side.
Understanding Supply-Chain Visibility & Production Agreements
Turning to possible strategic actions, Laura Siegel Rabinowitz, shareholder, international trade, Greenberg Traurig, advised that the first step integrators should take is to have visibility into their current supply-chain models. This, she said, is key to understanding whether products as a whole, or even components of the products, are manufactured overseas and then imported into the U.S. “Next,” she continued, “conduct a risk analysis and assess if products come from the affected countries.” (Currently, this most notably is Canada, Mexico and China.)
According to Rabinowitz, following this risk analysis, integrators should look into their production agreements with their manufacturer partners and vendors. “Edit existing agreements on tariff responsibilities and construct language to protect yourself when establishing tariff responsibilities in new agreements,” she counseled.
Leveraging Duty-Mitigation Tactics
Noting that integrators must also understand duty calculations, Rabinowitz provided a breakdown of the possible calculations. For instance, if a steel product/component is manufactured in China, then the duty calculation would include the general duty, Section 301, at 25%; the additional 10% on China; and the 25% on steel and aluminum. This would round off to around 65%. Rabinowitz added, “However, these duty calculations are very country specific and product specific.” Thus, she went back to her earlier advice: Have complete visibility into the entire supply-chain model to determine the duty calculations and production agreements.
In terms of sourcing strategies, Rabinowitz said that integrators need to examine the product classification, value of the goods and country of origin. As an example, she pointed to how certain manufacturers shifted the country of origin from China to any other supplying country during the first round of tariffs in 2018-2020. “However,” Rabinowitz emphasized, “even in this case, you need to look at the capacity in other countries, the quality of the product and [possible] labor issues.”
According to Rabinowitz, other strategies involve duty-mitigation tactics such as first sale, duty refunds and duty deferral. Focusing on first sale, Rabinowitz explained that the current law allows importers to base the valuation of a product entering the U.S. on the first or earlier sale in a series of transactions, rather than the last one. “This achieves reduced landed cost of imported goods, reduced duties and fees, while increasing the partnership with the focused vendor pool,” she added.
Emphasis on Clear Communication
On the manufacturer’s side, Alex Capecelatro, CEO and co-founder, Josh.ai, remarked that it is important to communicate to clients about the fluctuation in product prices in wake of the new policies. On the other hand, he noted that warranties are fabricated by the manufacturer based on the product life cycle, and they begin only after purchase of the product. “You can extend the warranty as a show of goodwill and maintain partner relationships,” he stated.
Rabinowitz agreed, reiterating that integrators and manufacturers should maintain documentation as well as communicate and edit the proposals/agreements so that purchase orders match up. “Again, you have to be very careful with the tariff language as it is extremely fluid,” she underscored.
Final Thoughts
On wrapping up the webinar, Daryl Friedman, CEO of CEDIA, announced that the organization will help draft proposals and agreement templates that convey the language on tariffs as clearly as possible. According to Friedman, this is a great resource and will be useful for all members and non-members as the industry collectively navigates through the new changes.
