The new 25% tariffs announced by the USTR, set to go into effect on July 6th, are decidedly anti-Maker and ironically pro-offshoring. I’ve examined the tariff lists (List 1 and List 2), and it taxes the import of basic components, tools and sub-assemblies, while giving fully assembled goods a free pass. The USTR’s press release is careful to mention that the tariffs “do not include goods commonly purchased by American consumers such as cellular telephones or televisions.”

Think about it – big companies with the resources to organize thousands of overseas workers making TVs and cell phones will have their outsourced supply chains protected, but small companies that still assemble valuable goods from basic parts inside the US are about to see significant cost increases. Worse yet educators, already forced to work with a shoe-string budget, are going to return from their summer recess to find that basic parts, tools and components for use in the classroom are now significantly more expensive.

Above: The Adafruit MetroX Classic Kit is representative of a typical electronics education kit. Items marked with an “X” in the above image are potentially impacted by the new USTR tariffs.

New Tariffs Reward Offshoring, Encourage IP Flight

Some of the most compelling jobs to bring back to the US are the so-called “last screw” system integration operations. These often involve the complex and precise process of integrating simple sub-assemblies into high-value goods such as 3D printers or cell phones. Quality control and IP protection are paramount. I often advise startups to consider putting their system integration operations in the US because difficult-to-protect intellectual property, such as firmware, never has to be exported if the firmware upload operation happens in the US. The ability to leverage China for low-value subassemblies opens more headroom to create high-value jobs in the US, improving the overall competitiveness of American companies.

Unfortunately, the structure of the new tariffs are exactly the opposite of what you would expect to bring those jobs back to the US. Stiff new taxes on simple components, sub-assemblies, and tools like soldering irons contrasted against a lack of taxation on finished goods pushes business owners to send these “last screw” operation overseas. Basically, with these new tariffs the more value-add sent outside the borders of the US, the more profitable a business will be. Not even concerns over IP security could overcome a 25% increase in base costs and keep operations in the US.

It seems the intention of the new tariff structure was to minimize the immediate pain that voters would feel in the upcoming mid-terms by waiving taxes on finished goods. Unfortunately, the reality is it gives small businesses that were once considering setting up shop in the US a solid reason to look off-shore, while rewarding large corporations for heavy investments in overseas operations.

New Tariffs Hurt Educators and Makers

Learning how to blink a light is the de-facto introduction to electronics. This project is often done with the help of a circuit board, such as a Microbit or Chibi Chip, and a type of light known as an LED. Unfortunately, both of those items – simple circuit boards and LEDs – are about to get 25% more expensive with the new tariffs, along with other Maker and educator staples such as capacitors, resistors, soldering irons, and oscilloscopes. The impact of this cost hike will be felt throughout the industry, but most sharply by educators, especially those serving under-funded school districts.

Above: Learning to blink a light is the de-facto introduction to electronics, and it typically involves a circuit board and an LED, like those pictured above.

Somewhere on the Pacific Ocean right now floats a container of goods for ed-tech startup Chibitronics. The goods are slated primarily for educators and Makers that are stocking up for the fall semester. It will arrive in the US the second week of July, and will likely be greeted by a heavy import tax. I know this because I’m directly involved in the startup’s operations. Chibitronics’ core mission is to serve the educator market, and as part of that we routinely offered deep discounts on bulk products for educators and school systems. Now, thanks to the new tariffs on the basic components that educators rely upon to teach electronics, we are less able to fulfill our mission.

Heads up! Prices for our products may have to rise in a couple weeks once 25% import tariffs are implemented (US only). If you've been on the fence, now is a good time to buy.

— chibitronics (@chibitronics) June 18, 2018

A 25% jump in base costs forces us to choose between immediate price increases or cutting the salaries of our American employees who support the educators. These new tariffs are a tax on America’s future – it deprives some of the most vulnerable groups of access to technology education, making future American workers less competitive on the global stage.

Above: Educator-oriented learning kits like the Chibitronics “Love to Code” are slated for price increases this fall due to the new tariffs.

Protectionism is Bad for Technological Leadership

Recently, I was sent photos by Hernandi Krammes of a network card that was manufactured in Brazil around 1992. One of the most striking features of the card was how retro it looked – straight out of the 80’s, a full decade behind its time. This is a result of Brazil’s policy of protectionist tariffs on the import of high-tech components. While stiff tariffs on the import of microchips drove investment in local chip companies, trade barriers meant the local companies didn’t have to be as competitive. With less incentive to re-invest or upgrade, local technology fell behind the curve, leading ultimately to anachronisms like the Brazilian Ethernet card pictured below.

Above: this Brazilian network card from 1992 features design techniques from the early 80’s. It is large and clunky compared to contemporaneous cards.

Significantly, it’s not that the Brazilian engineers were any less clever than their Western counterparts: they displayed considerable ingenuity getting a network card to work at all using primarily domestically-produced components. The tragedy is instead of using their brainpower to create industry-leading technology, most of their effort went into playing catch-up with the rest of the world. By the time protectionist policies were repealed in Brazil, the local industry was too far behind to effectively compete on a global scale.

Should the US follow Brazil’s protectionist stance on trade, it’s conceivable that some day I might be remarking on the quaintness of American network cards compared to their more advanced Chinese or European counterparts. Trade barriers don’t make a country more competitive – in fact, quite the opposite. In a competition of ideas, you want to start with the best tech available anywhere; otherwise, you’re still jogging to the starting line while the competition has already finished their first lap.

Stand Up and Be Heard

There is a sliver of good news in all of this for American Makers. The list of commodities targeted in the trade war is not yet complete. The “List 2” items – which include all manner of microchips, motors, and plastics (such as 3D printer PLA filament and acrylic sheets for laser cutting) that are building blocks for small businesses and Makers – have yet to be ratified. The USTR website has indicated in the coming weeks they will disclose a process for public review and comment. Once this process is made transparent – whether you are a small business owner or the parent of a child with technical aspirations – I encourage you to please share your stories and concerns on how you will be negatively impacted by these additional tariffs.

Some of the List 2 items still under review include:

Here’s some of the “List 1” items that are set to become 25% more expensive to import from China, come July 6th:

Staples used by every Maker or electronics educator:

Circuit assemblies (like Microbit, Chibi Chip, Arduino):

Basic electronic components:

Parts to fix your phone if it breaks:

Power supplies: