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The United States and China have agreed to wind down the foolish trade war that president Donald Trump started in late 2018. Last week, the two countries signed “phase 1” of a trade deal. That agreement includes an increase in U.S. exports to China and some mechanisms for potentially protecting intellectual property in China. But it’s maybe more important to Sony, Microsoft, and Nintendo because it gives some assurance that the U.S. won’t enact new tariffs on video game consoles.
As the U.S. and China went tit-for-tat throughout 2019, the console manufacturers made an unprecedented joint request aimed at Donald Trump’s government. Trump was planning to add a 25% import tax to a huge swath of Chinese goods by August including products like Xbox and PlayStation. In their June letter, Sony, Microsoft, and Nintendo asked U.S. trade representative Joseph Barloon not to go through with that plan.
Trump never responded directly to that request, but he did delay the new tariffs to December 15. The United States then further delayed the taxes to work on the trade deal. And now, Trump claims those proposed tariffs are off the table.
If that’s true (which is impossible to predict because Trump could always go back on his deal), then the entire video games industry dodged a bullet.
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It’s tough to tell if the trade deal will have a wider positive effect on the economy. It doesn’t undo any of the previous tariffs that are already in effect, which are taxes that Americans must continue to pay. But that’s exactly why the timing was so important to console manufacturers.
The tariffs never went into effect on consoles, so Sony, Microsoft, and Nintendo don’t have to wait for the government to repeal them. This is especially crucial this year because new, expensive hardware is coming out during the holidays. Sony has the PlayStation 5. Microsoft has Xbox Series X. And Nintendo may even have a Switch Pro, according to some rumors.
The one thing that all of these new devices have in common is that they cost a lot of money. PlayStation 5 and Xbox are using advanced AMD Ryzen CPUs and cutting-edge SSD storage. It’s unlikely they are going to sell for under $500. And the last thing Sony, Microsoft, and Nintendo need is to add an extra $100-to-$125 to the price to pay a 25% import tax.
I reached out to Sony, Microsoft, and Nintendo for a comment on this story, and they all declined to respond. They are likely practicing the Billy Beane strategy of hanging up the phone when you get the answer you’re looking for.
But now with tariffs seemingly no longer looming, the big three have a clear runway to launch whatever hardware they want. And this is good news for gaming fans because it means that Microsoft and Sony can get as aggressive with their pricing as possible.
That should also have a run-off effect where it should leave more money in consumers pockets to spend on software. And that should help the wider business overall.
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