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Hardware makers discuss tariff effects at channel event

Hardware vendors aim to mitigate the effects of the Trump administration's tariffs on imported Chinese goods, using such strategies as tariff engineering.

Some of the leading hardware vendors have revealed how they are taking steps to try to minimize tariff effects stemming from the U.S.-China trade dispute.

Since July, the Donald Trump administration has imposed tariffs on $250 billion in goods imported from China. The latest round of tariffs, which began Sept. 24, included networking components and hardware. The current 10% tariff rate could rise to 25% on Jan. 1.

Speaking at the Canalys Channels Forum event in Barcelona, Spain, Dion Weisler, CEO at HP Inc., said his company has specialists working to ensure potential increases of up to 25% are not passed on to customers, becoming an issue that channel partners had to deal with.

"I would say that from a U.S.-China trade war perspective, this is probably an area of most concern for many of us in this industry," he said.

Mitigating tariff effects

The prospect that tariff effects could complicate life for partners and their end customers has elevated a new job category: tariff engineering. The goal of tariff engineering is to source components and build products in such a way that the lowest-possible duty applies to the finished good.

"We have this new job code within our company -- and I'm sure all of the industry has a similar job code in HR -- and it's called tariff engineering," Weisler said. "Their job is to figure out, through multiple levers, how to reduce those tariffs down to a net number, and the net number is significantly lower. We are able to do that. We operate large supply chains and can move things around," he said.

Weisler suggested successful tariff engineering can create a competitive advantage.

"If you can figure out how to tariff engineer better than the next company, if you can figure out how to optimize the system, if you can figure out how to reconfigure, if you can figure out how to change your supply chains, then you can be the beneficiary of the change," he said.

Weisler said the prospect of further tariffs could make life more difficult, and it was not clear what retaliatory actions China might take.

Gianfranco Lanci, corporate president and COO at Lenovo, also spoke at the Canalys Channels Forum. He also faced questions about tariff effects.

 "We see a very small impact today in terms of trade war and [tariffs]," he said. "Most of the impact is on networking. And when we talk about desktop, it's related to the networking capability on the desktop."

Cloud implications

We have this new job code within our company -- and I'm sure all of the industry has a similar job code in HR -- and it's called tariff engineering.
Dion WeislerCEO at HP Inc.

Stefanie Holland, director of international government and regulatory affairs for the industry association CompTIA, said U.S. government officials have advised that the Harmonized System codes used to classify goods involved in global trade "will be extensively reviewed." She added that companies may also scrutinize their product classifications.

"Companies are considering the duration of the tariffs and, due to the expansiveness of the tariff increases, may feel compelled to look at options to move U.S. manufacturing facilities overseas to mitigate impacts on the companies and the consumers," Holland said.

Tariffs on equipment used in data centers and cloud infrastructure could trickle down the supply chain.

"Tariffs on cloud equipment and other IT components from China amount to taxes that will make manufacturing in the U.S. more expensive," Holland said. She cited companies doing final assembly of servers, data centers or other cloud infrastructure in the U.S. as examples.

Such companies could move their facilities overseas to avoid tariff effects, she said.

"This could drive U.S. businesses of all sizes who currently rely on U.S.-based cloud and U.S. data centers to rely more on foreign providers," she said.

Holland also expressed concern regarding U.S. competitiveness.

"From a competitiveness perspective, U.S. leadership in high-tech industries is dependent on access to the products included in the tariff lists. The global cloud services market segment is expected to reach $300 billion by 2021.  Taxes on these products would undermine U.S. market."

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