Video game consoles like the PlayStation 4 Pro and Xbox One X can easily set you back $500 these days, depending on how much memory you want to buy — and there’s a good chance these prices could inflate due to tariffs against China.
Microsoft, Sony and Nintendo penned a joint letter in June to the Office of the United States Trade Representative, Ambassador Robert E. Lighthizer, warning the Trump administration that Chinese tariffs dealing with technology transfer, intellectual property and innovation would cause “undue economic harm” to the entire gaming industry.
A 25% tariff on consoles would put new systems out of reach for most families, the companies argue. The total additional cost for transactions that do occur, though, would be $840 million more than without tariffs, according to the Consumer Technology Association, an Arlington, Va.-based standards and trade organization.
Even after accounting for new tariff revenue, the CTA study said, there would still be $350 million in net loss each year the tariffs remain in place and that consumers will bear that burden via more expensive systems and games.
The video game industry is just one chess piece on a wobbly chessboard, waiting for the next move in the U.S.-China trade war. The fates of about $300 billion worth of goods that have not been impacted by tariffs, yet — including video game consoles, software and accessories — lie in limbo.
“This is Economics 101. It’s the same problem experienced by manufacturers who rely on steel when the administration unilaterally put into place steel tariffs,” said Christopher Arnold, general counsel at Schell Games, a Pittsburgh-based game design studio.
Some industries like automobiles manufacturing have already felt the strain of tariffs since there are no cheap alternatives to pieces of the supply chain, like spark plugs and exhaust pipes, which are typically imported from China en masse.
Meanwhile, other industries, like solar, have taken precautions against further price hikes by slowly moving production out of China and into countries like Mexico and Vietnam.
Ten days after the video game companies’ letter was issued, President Donald Trump agreed he would not increase existing tariffs for now, while he negotiates with Xi Jinping, general secretary of the Communist Party of China.
It’s unclear if that’s directly due to Big Tech’s influence, though Mr. Trump has reopened trade between Huawei, the Chinese telecommunications giant, and U.S. companies that supply high-tech goods to the firm.
I had a great meeting with President Xi of China yesterday, far better than expected. I agreed not to increase the already existing Tariffs that we charge China while we continue to negotiate. China has agreed that, during the negotiation, they will begin purchasing large.....
— Donald J. Trump (@realDonaldTrump) June 29, 2019
If the trade war does take a turn toward additional sanctions, Microsoft, Sony and Nintendo claim that it’s not only the tech giants that will suffer from reduced transactions. Mid-size and boutique development studios that create games for these platforms will, in turn, see lower sales and more job losses, too.
Over 65,000 people work in the video game business in the U.S. at over 27,000 software firms, according to the Entertainment Software Association, a trade group for the video game industry.
Schell Games in Station Square is one of Pittsburgh’s most recognizable video game companies. The team of 130 there has created games like “I Expect You To Die,” a virtual reality escape-the-room game and “Daniel Tiger’s Stop & Go Potty” app, which teaches children to use the toilet.
Mr. Arnold at Schell said that tariffs on video games would primarily hurt two main subgroups of the video game economy: the large companies that create consoles and the studios that work on nascent technologies, like virtual reality and augmented reality.
Oculus, for example, is working on a new generation of virtual reality game consoles. The Menlo Park, Calif.-based company — which is owned by Facebook and operates a research outpost in Oakland — may see investors become reluctant to try new concepts like that if tariffs enter into play.
“Adding a tariff or any sort of barrier to the consumer is compounding risk on risk,” Mr. Arnold said. “Any time you have an additional risk element, some people tend to be more conservative.”
And without support for those big consoles, thousands of game developers may see decreased demand for their products, either because consoles are too expensive for most consumers or because the prices of games go up. Or, in extreme cases, tariffs could lead to layoffs.
In its 17-year history, Schell has never laid off an employee.
Mr. Arnold hopes that policy decisions will not end up harming the gaming industry. If tariffs do go into place, he said, “there will be casualties,” and those lost workers are more than just a number, he said.
“They’re people that have been engaging in the creative economy, they’re people with student debt. They’re the best and the brightest,” Mr. Arnold said.
“We’re just holding our breath and picking up the pieces.”
Courtney Linder: clinder@post-gazette.com or 412-263-1707. Twitter: @LinderPG.
First Published: July 9, 2019, 1:00 p.m.
Updated: July 9, 2019, 3:19 p.m.
