Gaming rivals Sony Interactive Entertainment LLC (SIE), Nintendo of America Inc., and Microsoft Corporation showed unity in a joint letter appealing to remove US President Trump’s tariffs on China-manufactured game consoles.
Last May, President Trump increased the tariff rate from 10% to 25% on approximately $200 billion worth of Chinese exports. Most of the goods affected by new tariff prices are electronics. One of which would be gaming consoles like PlayStation, Xbox, and Nintendo Switch.
Addressed to the Office of the United States Trade Representative (USTR), Joseph Barloon, the joint letter states that the companies support the request of Entertainment Software Association’s request to remove a broader range of video gaming-related tariffs from the final list.
Most of the game consoles produced by the three gaming giants are manufactured from China. If the increase in tariff rates were intended for China-made consoles, it wouldn’t be a significant impact on them. According to the trio’s joint letter, Chinese game consoles are “virtually non-existent.” Thus, the tariffs on gaming consoles will only hurt retailers, video game developers, and ultimately, the US consumers.
In the letter, the companies share that the added cost of the tariff rates will likely be passed on to the consumers due to their small profit margins. With higher prices on game consoles, sales are likely to decrease.
It is also notable that the companies do not oppose the US Administrations’ decision and execution on the increase in tariff rates against goods coming from China. However, they would like to request an exemption on the video game industry’s products.
Reasons for Request
The companies cited three major points on why tariffs on video game consoles would be detrimental.
Firstly, gaming companies claim that the new tariff rates will hinder the innovation of the gaming industry, which will affect the US’s economic growth.
They emphasized that the gaming industry entertains and engages consumers of all ages. Thus, the US market for gaming consoles and other related accessories and merchandise are substantially large. Economically, US consumers contributed to the total revenue of $43.4 billion in 2018. Collectively, the three companies sold more than 15 million gaming consoles in the US in the same year.
Aside from the revenues that keep the companies afloat, they also mentioned that these companies employ 8,000 people in the US. The merchants who also sell their products are mostly from small businesses. Retailers will most likely be affected in terms of decreased sales projected this year should the tariff rates not be removed.
Secondly, video game consoles have highly functional specifications in both hardware and software parts. Currently, video game producers cannot change the supply chain; each of them invested in China. Aside from the loss of investment, shifting their production to other countries like the US or other non-tariff-ed countries will be too costly.
The companies emphasized that a change in one supplier goes through numerous processes to ensure product quality and reliability for consumers’ safety.
Lastly, the new tariff rates will harm not just the video gaming industry but also the general software industry itself. Video game developers, including independent and start-up companies, may no longer continue developing games if gaming console users will decrease due to its high prices. This could mean further innovation and improvements will stop since the motivation to create new games, operating systems, and gameplay designs will lessen.
The letter proceeds to share that merchandise designers and accessory developers related to the gaming industry will also be affected.
Nintendo started as a small business in Kyoto with playing cards as its main product. In 1975, the company ventured into video games and released their first arcade game called EVR Race.
Over the years, Nintendo has produced gaming consoles such as Family Computer (also known as Famicon), Nintendo Entertainment Systems (NES), Game Boy, Nintendo Wii, and their latest the Nintendo Switch.
Meanwhile, in 1993 SIE was established as a joint venture between Sony Corporation and Sony Music Entertainment (Japan) Inc. In December 1994, the PlayStation console, also known as PSOne, was created. It was a direct competitor of Nintendo’s Nintendo 64 console. SIE continue producing upgraded versions of the PlayStation and other gadgets such as the lesser known, Pocket Station. Currently, SIE is developing its latest console, the Playstation 5 (PS5).
The youngest video gaming player among the giants is Xbox Games Studios owned by Microsoft Corporation. Established in 2000, Microsoft developed their gaming console–the Xbox. Aside from consoles, Microsoft acquiring studios such as Digital Anvil and Ensemble Studios to manufacture video games such as Halo: Combat Evolved. In 2013, Xbox One was launched which directly competed with PlayStation 4 (PS4).
In this year’s Electronic Entertainment Expo, Microsoft announced that development of Xbox Two is underway.
With the rise of advancements in technology and game design, the competition among the three has been more fierce. By the end of 2019, Nintendo is poised to release a new Switch console. Meanwhile, SIE and Microsoft plans to release PS5 and Xbox Two next year.