Tariffs and Trade Restrictions Bad for U.S. LED Lighting Businesses (updated)

Whether or not we want them, trade restrictions and tariffs are now being enforced for products coming into the U.S. from several company abroad. I expect that other countries will institute their own tariffs on U.S. goods as well in retaliation. These restrictions and tariffs could mean trouble for even the U.S. based LED lighting makers that manufacture or at least source some of their components from outside the country.

Goods and components produced in China and Taiwan will be especially hard-hit with tariffs. Hence, numerous foreign companies trying to sell products and components in the U.S. will also face an uphill trade battle. For U.S. LED lighting companies that make all types of lighting from general lighting and grow lights, to automotive lighting, getting components from China will quickly become prohibitively expensive. Even European-made products may get some type of tariff or restrictions, making European-made components and products also less competitive in the U.S. due to cost.

The solution is to either produce the components in the U.S. or get them from somewhere other than China or Europe. The businesses that have planned ahead have either found multiple sources elsewhere or have started producing their own components in-house.

New U.S.-based Makers of High-Powered LEDs Unlikely

Unfortunately, high-power LED production and packaging has the steepest price of entry in terms of equipment, expertise, and intellectual property. So, even with these tariffs and restrictions, it is unlikely that more U.S. companies will begin producing high-power LEDs.

The situation is not good even one of the most robust U.S.-based LED makers, Cree, which like many other U.S. companies also has manufacturing in China. So importing products and components from its China facility are expected to face a 25% tariff. LEDs makers who are already facing strong price competition may be under even more price pressure as retailers such as Home Depot continue selling Chinese-made products that they have in inventory at the same or similar prices. Other products that are not Chinese made will also continue coming into the country at relatively low prices in the short term. Also, exports to other countries may eventually end up costing more as the other countries retaliate with their own tariffs.

Lumileds, a silicon-valley LED-maker, would also likely face reduced sales worldwide.

Companies with production in countries other than China and the European Union could also benefit in the short term, but as other countries retaliate with their own tariffs, the benefit will be short-lived.

Uncertain Market Due to Trade Concerns

German-based firm Osram Licht AG has lowered its revenue expectations for the fiscal year 2018 due to order postponements in its automotive, horticulture, and mobile device component businesses due to tariffs and trade restrictions from the U.S.

U.S. company Cree and others have cited uncertainty in the revenue projections due to trade restrictions and tariffs.

Alternative Component Sources can Help Overcome Tariffs and Trade Restrictions

Finding alternate sourcing for components is the key to overcoming the trade barriers. Only time will tell how the LED lighting industry copes with trade barriers.

U.S. Manufacturers of LED Lighting Could Weather Storm Better, but Will not Likely Thrive

However, one thing is highly probable. Companies based outside of Europe and China that produce their products also outside of Europe and China will likely have fewer trade restrictions for selling products in the U.S. Furthermore, U.S. based companies that source all of their components in the U.S. will not have the same restrictions and added costs. And the reduced competition will reduce the price pressure on U.S.-made lighting goods. However, those that sell goods outside of the U.S. will ultimately have to sell their products for higher prices than the competition under foreign tariffs.

So, while a few companies that source their products just inside the U.S. might do OK in the near future, foreign competition will most ultimately reduce revenues.

Luxeon Color

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