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How The Tariff Threats Could Impact Smartwatches

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July 24, 2018 11:39 am
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President Donald Trump recently announced plans to impose tariffs on $200 billion in goods imported from China. The decision could affect products from Fitbit, Inc (NYSE:FIT), as well as other smartwatch manufacturers.

What Happened

The tariffs could have direct ramifications on certain popular products in the U.S.

U.S. Customs and Border Protection considers Fitbit products to be “data transmission machines” that will likely face 10-percent tariffs with the approved proposal, considering they are primarily manufactured in China, according to Reuters.

Wedbush analyst Alicia Reese weighed in on the potential impact on the tech products.

If the tariffs are enacted, they will likely harm Fitbit — but the smartwatch maker is unlikely to raise product prices in order to avoid driving down unit sales, the analyst said.

"We would expect Fitbit to instead adjust its operating expenses by rationalizing R&D and/or marketing expense. Alternatively, Fitbit could make changes to its manufacturing location or process,” Reese told Benzinga.

Despite speculation on tariffs causing higher product prices, Reese is considering other possibilities.

"We think it is worth noting that Fitbit employs third-party fulfillment partners to deliver its products from multiple locations globally. This may allow Fitbit to distribute all of its international sales (40-45 percent of revenue) directly, thereby circumventing tariffs on that portion of its business."

Why It’s Important

Assuming the tariffs are approved, smartwatch companies will likely face tough decisions on how to produce and distribute their products.

While there's no direct evidence to suggest that Fitbit will raise prices, that logic may not hold true for Apple, Inc (NASDAQ:AAPL) and specific versions of its Apple Watch.

If select companies raise prices while others do not, a new competitive nature could be added to the already challenging landscape of electronics.

The U.S. Trade Representative’s Office announced it will hold public hearings July 24 and 25 on the proposed tariffs.

Related Links: 

How Do Fitbit's Versa, Ace Stack Up Against Competitors?

The Fitbit IPO

Photo courtesy of Fitbit. 

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