Tariff rates on final goods for dummies

[Paul2]

1. You want to make a 2TB NVME SSD
2. You buy $50 of dumping pricing YMTC flash chips
3. If you just sell chips to USA at cost, they get the blanket China tariff, and cost $70 at the port of entry, which is already near the retail price.
4. If you move chips to a third country, add a $0.5 Chinese SSD controller, mainland Chinese PCB, and assemble them on an SMT line for one more dollar, you can confidently slap the "Made In that third country"
5. The above however not always means the country of origin for customs purposes, and at the same time can be completely legit. The exact determination is an unbelievably long mess of court decisions in common law countries — "You will not know until you get sued"
6. The history behind the point above is vividly illustrated by "Made In China" goods paying PRC tariff rate despite being 99% made of Japanese, Korean, Taiwanese components. That was the reasons for years of disputes before, as China paid lesser tariff as an underdeveloped country under WTC rules.
7. With low single digit tariff, it never made sense to realise profits in a more expensive tax jurisdiction.
8. With double digit tariffs, things are not so simple, and you will be incentivised to realise more profit at the destination, and take less profit as such to stay competitive. BUT, if OEM has zero legal presence in USA, he don't need to declare profit in USA.

SMT line in a third country is a license to print money now with simple, single PCB products.

 

[MKWVentures]

1. You want to make a 2TB NVME SSD
2. You buy $50 of dumping pricing YMTC flash chips
3. If you just sell chips to USA at cost, they get the blanket China tariff, and cost $70 at the port of entry, which is already near the retail price.
4. If you move chips to a third country, add a $0.5 Chinese SSD controller, mainland Chinese PCB, and assemble them on an SMT line for one more dollar, you can confidently slap the "Made In that third country"
5. The above however not always means the country of origin for customs purposes, and at the same time can be completely legit. The exact determination is an unbelievably long mess of court decisions in common law countries — "You will not know until you get sued"
6. The history behind the point above is vividly illustrated by "Made In China" goods paying PRC tariff rate despite being 99% made of Japanese, Korean, Taiwanese components. That was the reasons for years of disputes before, as China paid lesser tariff as an underdeveloped country under WTC rules.
7. With low single digit tariff, it never made sense to realise profits in a more expensive tax jurisdiction.
8. With double digit tariffs, things are not so simple, and you will be incentivised to realise more profit at the destination, and take less profit as such to stay competitive. BUT, if OEM has zero legal presence in USA, he don't need to declare profit in USA.

SMT line in a third country is a license to print money now with simple, single PCB products.

Actually do don't even need to do SMT. there are other ways to do "made in country" (transformation)..... completely crazy and completely legal. SSDs are one of the most fun ones we did.

 

[Paul2]

Actually do don't even need to do SMT. there are other ways to do "made in country" (transformation)..... completely crazy and completely legal. SSDs are one of the most fun ones we did.

Mid-tier consumer SSDs are a total cash crop. I am looking into a possibility to try it myself. Lazy NAND die vendors don't want to sell directly outside China for orders smaller than $1M for any sane price.

The surrealism of the situation now with surprise tariffs is that NAND prices are at all times low, and falling, while retail prices started to go up even before tariffs were imposed.

 

[Daniel Nenni]

1. You want to make a 2TB NVME SSD
2. You buy $50 of dumping pricing YMTC flash chips
3. If you just sell chips to USA at cost, they get the blanket China tariff, and cost $70 at the port of entry, which is already near the retail price.
4. If you move chips to a third country, add a $0.5 Chinese SSD controller, mainland Chinese PCB, and assemble them on an SMT line for one more dollar, you can confidently slap the "Made In that third country"
5. The above however not always means the country of origin for customs purposes, and at the same time can be completely legit. The exact determination is an unbelievably long mess of court decisions in common law countries — "You will not know until you get sued"
6. The history behind the point above is vividly illustrated by "Made In China" goods paying PRC tariff rate despite being 99% made of Japanese, Korean, Taiwanese components. That was the reasons for years of disputes before, as China paid lesser tariff as an underdeveloped country under WTC rules.
7. With low single digit tariff, it never made sense to realize profits in a more expensive tax jurisdiction.
8. With double digit tariffs, things are not so simple, and you will be incentivized to realize more profit at the destination, and take less profit as such to stay competitive. BUT, if OEM has zero legal presence in USA, he don't need to declare profit in USA.

SMT line in a third country is a license to print money now with simple, single PCB products.

It is going to be interesting to see how companies try and dodge the tariffs. It will be a battle between some very smart people and should be quite entertaining. Shady people will be involved as well. One thing I can say about Trump is that you do not want to be on his naughty list.

 

[Paul2]

It is going to be interesting to see how companies try and dodge the tariffs. It will be a battle between some very smart people and should be quite entertaining. Shady people will be involved as well. One thing I can say about Trump is that you do not want to be on his naughty list.

The US companies will be mostly fighting the precedents they set themselves in courts decades ago to earn the privilege to label products which were 99% US made per material value as made in third country, because they did not want to pay taxes based on costs of their own parts. That's the funniest thing about the situation.

The Made In China label is still largely a misnomer even these days. You can routinely find consumer products assembled with 100% parts, and materials imported to China, except not Western made, but mostly Taiwanese or Korean these days.

 

[Sysreq]

This is in part of what Trump’s Canada and Mexico tariffs are trying to prevent. America’s attempts to disconnect from China since the pandemic have been largely unsuccessful due to exactly what you describe. I forget who exactly, but some Secretary of Something was on Bloomberg recently talking about getting Canada and Mexico to match America’s tariffs on Chinese goods to create a “Fortness North America” to stand against Chinese market manipulation.

I think this is exactly what they are trying to fix though. Trump wants to remove those second order dependencies that are coming in via partner free trade agreements.

I suspect Mexico will get on board first. Canada to hold out as long as possible, they’d rather collapse their economy than admit they need America.

 

[Barnsley]

This is in part of what Trump’s Canada and Mexico tariffs are trying to prevent. America’s attempts to disconnect from China since the pandemic have been largely unsuccessful due to exactly what you describe. I forget who exactly, but some Secretary of Something was on Bloomberg recently talking about getting Canada and Mexico to match America’s tariffs on Chinese goods to create a “Fortness North America” to stand against Chinese market manipulation.

I think this is exactly what they are trying to fix though. Trump wants to remove those second order dependencies that are coming in via partner free trade agreements.

I suspect Mexico will get on board first. Canada to hold out as long as possible, they’d rather collapse their economy than admit they need America.

Thats what tariffs were uses for in the past , to try and stop your "neighbours" trading with someone you didnt want them to.

Ended in a lot of warfare.