- Sep 20, 2018 -
200 billion tariffs levied, what impact to LED industry chain
On September 17, US President Trump announced that he would increase the tariff of 10% on Chinese products worth 200 billion U.S. dollars, and officially implement it from September 24 until the end of the year. This tariff will increase to 25% from the New Year. The Chinese side, which prepared for the US decision, said earlier that it would have to counter it. However, Trump also issued a warning, if the Chinese side countered, immediately added another 267 billion US dollars.
The trade conflict erupted by Trump has intensified, and the LED industry has unfortunately been affected and deeply affected.
This tax products up to 200 billion US dollars, including the lighting industry, is about 8 billion US dollars. As a result, 8 billion will indirectly affect the LED industry chain related to the upstream of the lighting industry, and cause pessimism and disappointment for the prospects of the LED industry by practitioners and capital markets.
But if you can't quantify the scope and scale of the impact, pessimism or optimism can only be regarded as a kind of emotional catharsis, and it is not useful for making correct judgments and decisions.
Looking back at the development of the Sino-US trade war, when the taxation of the washing machine and photovoltaic industry began, most people did not agree with the trade war. Until the April 50 billion tariff list is listed.
1.1 LED items included in the first round of tariff list
When the first round of tariff list came out, the main LED-related codes were mainly three items, and these items were industrial intermediates of the LED industry, not facing consumers. The downstream customers were mainly lighting manufacturers. Manufacturers of applied products, China's annual export to the United States is not large.
This is because the companies that manufacture lighting in the United States are very rare, CREE is a family, and some lighting products are still produced in the United States. However, most of the lighting brands are produced in Chinese foundries and then sold to the United States as finished products.
In general, although the tariffs on this batch are very high, the impact on the LED industry is very limited. The annual Sino-US trade amount does not exceed 200 million US dollars.
1.2 LED related items included in the second round of 2000 tariffs
The tariffs involved in this round of tariffs are very extensive. With the LED-related lighting industry, there are more than 30 products entering the catalogue, and the annual trade volume between China and the United States is about 8 billion US dollars. Whether it is a 10% or 25% tariff, it will have a huge impact on Sino-US lighting industry trade.
200 billion US dollars tariff impact and sensitivity measurement for the LED industry
2.1 Measurement of tariff effects
According to the calculation of LEDinside, in the short term, due to the difficulties of the Chinese manufacturers of the exporting side to adjust production, they will bear the tariff of about 1.5 billion US dollars.
In the medium term, tariffs will be shared by Chinese exporters and US consumers as Chinese manufacturers who act as suppliers have the ability to flexibly adjust the amount and quantity of exports to the US.
In the long run, because manufacturers have full supply flexibility, they can completely evade tariffs through third-party production or withdrawal from the US market. As a result, the price of products in the US market will be higher than the international market price.
Therefore, from the perspective of the manufacturer, the long-term share of the loss is actually very limited.
2.2 Sensitivity analysis of the scale loss caused by the 200 billion tariff to the LED lighting industry chain
Based on the loss share of Chinese exporters, we can make sensitivity analysis of relevant LED suppliers according to different timeframes to quantify the actual impact of the LED industry chain.
Each column represents a different market share situation, each row represents a different industry chain at different deadlines and tariff levels, the figures in the table represent different scenarios, the industry of the industry chain in the current round of 200 billion The impact of the US dollar tariffs.
It can be seen more clearly with the three-dimensional map, and the relatively large impact is the packaging factory at the tariff level of 25%. The chip link will have less impact on the overall package than the package.
For example, the market size of LED chips for lighting is about 11 billion. Suppose a company's sales reach 1 billion yuan, and the market share of lighting LED chips is 10%. In the short term, at the 10% tariff level, the margin is reduced. The order is about 3.6 million US dollars, and only 8 million US dollars under the 25% tariff level. The impact on sales revenue of 1 billion RMB is not significant.
The packaging process is relatively more affected because it accounts for a higher proportion of the cost structure of the lighting industry chain. However, the market share of packaging manufacturers is generally not high, even if the market share reaches 10%, the marginal decline of orders at the 10% tariff level in the short term is only 11 million US dollars, and at the 25% tariff level, it is only 23 million. US dollars.
Other companies with smaller market share will be more affected.
In the medium and long term, the actual impact of manufacturers through production adjustments and other evasive methods will be less obvious.
Although our analysis concludes that the impact of tariffs on the upstream industry of LEDs is minimal, the actual pressure felt by the LED industry chain is not trivial. What is the difference here?
The imbalance between supply and demand within the industrial chain is of course a very important internal cause, but the psychological impact of the trade war is also an important factor.
Terminal brands often take advantage of the opportunity of the trade war to take the opportunity to reduce the cost pressure and then pass it on to the upstream supply chain. Out of fear of trade wars, all links in the supply chain have become more conservative, reducing inventory levels, and even selling at low prices to clear inventory, resulting in a sharp decline in demand far exceeding the actual impact of tariff shocks.
But this also means that after the actual impact of tariffs is settled, the psychological impact will be abdicated, while the basic consumer demand has not disappeared, the demand for future restraint rebounds, and supply chain replenishment stocks may be strong.