Sony, Nintendo, Microsoft: Trump tariffs could raise prices of game consoles 25 percent

Sony, Microsoft, and Nintendo say tariffs would mean console price increases of 25%. That's a price increase of up to $100 in some cases. (Source: MGN)
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(KNOE) - (6/27/2019) - The country's three big video game giants have joined forces against a newly proposed 25 percent tariff on Chinese imports.

The new import taxes are proposed for Chinese imports not already covered by previous Chinese tariffs.

Sony, Nintendo and Microsoft each make video game systems that millions of Americans use every day and say the new import taxes will be extremely detrimental for their industry. They say the tariffs will affect the jobs of thousands of video game employees and force customers to pay 25 percent higher prices for hardware that already costs hundreds of dollars.

In a joint letter issued this week, the three companies say almost all video game consoles imported into the United States are made in China. They say their industry is designed around profits on game software sales so their gaming hardware, the PlayStation, Xbox, & Nintendo Switch, is sold at cost or just above cost. Thus, any import taxes would almost certainly have to be passed on to the buyer.

"Although our video game consoles provide a critical foundation for our businesses by driving demand for games and services, we sell them under very tight margin situations, meaning that we price video game consoles at--or slightly above--cost to make them as affordable as possible, and look to the sale of video games and services, which are much lower priced, to drive economic returns. Console purchasers are extremely price sensitive," the letter states.

Sony, Microsoft and Nintendo say tariffs would mean console price increases of 25 percent. That's a price increase of up to $100 in some cases.

"A price increase of 25 percent will likely put a new video game console out of reach for many American families who we expect to be in the market for a console this holiday season. For those purchases that do go forward despite tariffs, consumers would pay $840 million more than they otherwise would have, according to a recent study prepared for the Consumer Technology Association by the independent economic group, Trade Partnership. That study also noted that "[e]ven after accounting for new tariff revenue, the result is a net $350 million loss for the U.S. economy for each year the tariffs remain in effect, with the burden carried by U.S. consumers," the letter reads.

The letter reads that the tariffs would also be harmful to many small businesses, game development studios who create and sell software that runs on the hardware that would be taxed. Fewer game systems sold means fewer potential buyers for every game that is released.

"This industry directly and indirectly employs more than 220,000 people. Ninety-nine point seven percent (99.7 percent) of video game companies qualify as small businesses and can be found in each of the fifty states; many develop software for video games across the range of platforms, from PCs to mobile, including the video game consoles that we manufacture, and are an integral part of the booming app economy," according to the letter.

"Because of the deep interdependence of video game consoles and game software, and due to the price sensitivity of video game console purchasers, tariffs on video game consoles would not only harm our companies, consumers, and retailers, but will also disproportionately harm the thousands of small and medium-sized software and accessory developers in the United States. Thus, these tariffs would have a ripple effect of harm that extends throughout the video game ecosystem," the letter says.

The gaming giants are asking that their industry be exempt from paying import taxes on video game consoles. You can read the entire letter here.

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