In his continuing attempt to force the world into Cold War 2.0, Donald Trump recently ramped up hostilities with China by slapping a 10 per cent tariff on $200bn (£153bn) of Chinese-made goods imported into the US.
These duties - which came into effect at the end of September - will affect most major tech and telecom vendors, because a huge amount of the components in their products are manufactured in China.
Cisco and Juniper have already announced price hikes on their networking products of 10 per cent and 3.5 per cent respectively.
In a statement to CRN, Ken Miller, CFO at Juniper, confirmed that it would be passing the costs on to its partners and customers.
"Following suit with others in the industry, Juniper will be passing along the unmitigable portion of the tariff costs of affected products to our partners and customers as additional import tax charges," he stated.
"While this cost is an unfortunate increase for our customers, we are diligently working to mitigate the added burden."
Meanwhile, Hewlett Packard Enterprise (HPE) expressed its "disappointment" with the latest Trump tariff hike in a statement to CRN.
"We continue to believe that changes to an open-market system which has worked well for decades are not the way to go and will impact our manufacturing costs and our company's ability to invest," it said.
"Like most US tech firms, HPE relies on complex global supply chains and is bound to face various challenges arising from these tariffs. In addressing those challenges, we will work closely with all our stakeholders to ensure we deliver the best possible outcome for our customers."
Caught up in the trade war being waged between the two superpowers, where does this leave the UK channel?
A bump in the road
Martin Jones, MD of Oxfordshire-based reseller Lan3, said he has seen little communication from vendors about increasing their prices, but he assumes that all manufacturers will be affected by the US tariffs.
"I feel a bit better that Juniper is throwing around figures of 3.5 per cent because that suggests that this is a bump in the road rather than a catastrophe," he said.
"I would hate to think that it is more than 10 per cent because that will slow down orders. It wouldn't stop orders coming to us, but it would probably elongate the decision-making process."
Price increases from vendors are part and parcel of working in the channel, but these hikes on hardware may end up having a side effect - in that they could end up pushing more customers towards cloud-based offerings.
Paul Timms, managing director of MCSA, believes that any price hikes in the US will likely be reflected in Europe, but that public cloud providers such as Microsoft Azure and Amazon Web Services (AWS) could gobble up a lot of customers by providing a cheaper alternative.
"If the price increase comes across, it will affect demand because it is such a competitive space in the UK," he explained.
"Microsoft and AWS wouldn't be affected so much by a tariff increase because their stuff will be hosted in different geographies - they are not physically shipping kit so cloud could look very attractive to customers."
Who takes the hit?
When such heavy tariffs occur, questions swirl around which party should absorb the price jump - the vendor, partner or end customer. More often than not, it ends up being the third choice.
However, David Croft, vendor alliance director at Daisy, believes that the responsibility will ultimately depend on the profile of the partner.
"I think there will be an element of us, as partners, absorbing it," he said. "If you're selling it as a service, I think it will be absorbed [by the partner], but if it's just reselling goods, I think it will be passed on to the customer," he explained.
Croft added that Daisy "very rarely" makes kit-only deals, and so doesn't expect to feel the margin pressure from price jumps that other VARs might.
Paul Shannon, CEO of ANS, agreed with Croft, adding that he has not seen projects with customers scrapped based on price increases, even when they jump significantly, such as when vendors increased prices 25 to 30 per cent after the value of the pound dropped against the dollar in the wake of the Brexit referendum in 2016.
"This happens semi-regularly," he said. "I think it is probably newsworthy because of what has triggered it, but this thing happens all the time. Cisco increases the prices of import services every year around August and the market just deals with it.
"We work on transformational projects with customers. They can't stop doing this kind of work, otherwise the business would go backwards.
"Will it have some impact on cost-saving for clients in other areas to fund it? Maybe. But the IT projects we work on tend to go on regardless."
Lan3's Jones agrees that the vendor price hikes probably won't change the purchasing behaviour of customers, but he sees the increase being passed on to customers, particularly for VARs that concentrate on hardware sales.
"The margins on tin these days are very low and getting lower all the time, so I'd expect any price changes for VARs like us to be reflected in the end-user cost," he said.
"We are in transition from a company that does 60 per cent hardware and 40 per cent services to turning that on its head and doing 60 per cent services and 40 per cent hardware. For us, more of our business is coming from the services side.
"I think the ever-decreasing markings on tin [pushed us in this direction], but price hikes do make it worse."
MCSA's Timms also said that another unexpected twist of the cost increase is that smaller vendors might be in a better position to take the financial hit, potentially leading to new customers.
"Smaller vendors generally are a bit more disruptive so they are in a better position to absorb that cost increase," Timms claimed.
"When customers are buying from a smaller vendor, it tends to be because there is a USP that they are willing to pay extra premium for; the bigger they are, the more it will affect them - niche will be protected to a certain degree."
The red threat
The US trade war with China looks likely to heat up further in January, when the import tariffs on Chinese-built goods jump from 10 to 25 per cent. The knock-on effect from this may lead to Europe becoming a battleground between American and Chinese vendors.
Chinese manufacturers have faced multiple obstacles in the US this year, including Huawei and ZTE technology banned from being used by US government employees and its military.
This may lead Chinese vendors to follow in the footsteps of cloud provider Alibaba, which last month announced that it could no longer fulfil its promise to create one million US jobs due to the trade tensions, instead focusing its efforts on the European market.
"The Chinese guys are very strong over here at the moment and they could well benefit from an American price increase," stated Timms.
"I know lots of people in America would be averse to buying Chinese kit wholesale, however, all the Chinese manufacturers are gaining quite a lot of traction in Europe. The European market is their next biggest market so the Chinese could be using this cleverly as they're growing so fast."
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