While it was reasonably expected that the next gen consoles, PS5 and Project Scarlett, would be quite expensive for the average consumer, it seems the price of these future consoles could be even worse than we feared, though for reasons beyond Microsoft or Sony’s control. The Office of the U.S. Trade Representative has recently begun discussing potential tariffs on approximately $300 billion in Chinese goods. While these tariffs are not in place yet and are not guaranteed to be, the theoretical list of goods would include game consoles, which would of course affect the potential profit margins of companies selling say, the next gen Xbox or PlayStation.
These tariffs are proposed to be around 25%, which is a huge increase in production costs for companies that ship things to and from China. The aforementioned Office describes the situation as follows:
“The Office of the U.S. Trade Representative (USTR) will hold public hearings from June 17 to June 21, 2019, and, the following week, from June 24 to June 25, 2019, regarding proposed tariffs on approximately $300 billion worth of Chinese products. The proposed tariffs are a supplemental action in response to China’s unfair trade practices related to technology transfer, intellectual property, and innovation, based on the findings in USTR’s investigation of China under Section 301 of the Trade Act of 1974. Tariffs on $250 billion in goods from China are currently in effect under Section 301 trade action.”
As stated above, there is an opportunity for companies to make their thoughts known on the increased tariffs. Many companies are expressing their distaste for them, but since the next generation of consoles is coming as early as 2020, it’s understandable why both Sony and Microsoft have an immediate stake in these affairs, and it’s obvious why.
When heavy tariffs are imposed on a company’s goods, they have to pay more money to ship them, manufacture them, or order them. In this proposed situation, they’d have to pay $125 for every $100 part. And the only way to make up that massive 25% increase in production cost is to sell their goods for approximately 25% or more. It’s not a pretty picture for those of us looking to purchase these next gen consoles when 2020 comes along, since the cutting edge platforms are likely to be upwards of $500 as it is.
Sony and Microsoft are legitimately concerned that the price of their new consoles will be out of range of many American families during the holiday season, with the tariffs taken into account.
Unfortunately, it’s unlikely that the United States government will place too high of a priority on game consoles when discussing whether or not these tariffs will go through, but at least we’ll know what to expect if they do.
