back to article Amid Trump-China tariff tiff, Cisco kit prices to resellers soar up to 25%

In September, Cisco CEO Chuck Robbins warned that America's trade war with China would drive up price tags on technology. Now, The Register has learned those fears have seemingly manifested: Switchzilla has unexpectedly increased its prices. Robbins' warning came in an interview last month in which he said: “The tariffs that …

  1. Jack of Shadows Silver badge

    Getting a bit of a leading jump there. Tariffs are 10% currently, only going to 25% Jan 1, 2019 if they follow through with no new trade agreements. I'm completely unaffected now and later unless I need some new hardware. I still don't care much for tariffs yet am completely displeased by China's behaviors.

    1. diodesign (Written by Reg staff) Silver badge

      Re: Jack of Shadows

      "Tariffs are 10% currently, only going to 25% Jan 1, 2019"

      That's on the $200bn, I do believe. That initial $50bn is split into 10% on $34bn and 25% on $16bn.

      C.

    2. Anonymous Coward
      Anonymous Coward

      You may well be "displeased by China's behaviors", but the real blame needs to be put on the desk of El Presidente.

      Anyone who has spent a minimal amount of time doing business in the Asian region knows the Trump way of so-called "doing business" would never work in Asia without repercussions.

      Traditions and culture run deep in Asia, even in the business world.

      Going in with a gung-ho yank "fuck you, I'm doing you a favour by even talking to you, America First, Fuck Yeah ! " attitude is never going to work.

      1. Anonymous Coward
        Anonymous Coward

        And going in with the "I respect your mysterious and gracious Eastern traditions and culture, do what you want with me" will get you financially, and perhaps literally, shafted.

        1. Anonymous Coward
          Anonymous Coward

          >"I respect your mysterious and gracious Eastern traditions and culture, do what you want with me" will get you financially, and perhaps literally, shafted.

          That's not what I said.

          And here is not the time or place to start giving lessons on doing business in Asia. So believe what you like. I'm not going to waste my time trying to correct you.

          1. Anonymous Coward
            Anonymous Coward

            I'm not going to waste my time trying to correct you...

            Oooh... but you so want to, don't you?

      2. bombastic bob Silver badge
        Devil

        Mexico - a better alternative than China

        How about 'make in Mexico' instead of 'made in China'?

        There was an El Reg article some time ago that suggested that if you want labor intensive to be done at a lower cost, Mexico would be a better alternative than China. Just sayin'. The writing has been on the wall for some time now.

        /me supports what Trump is doing. watch, you'll see what _really_ happens!

      3. Anonymous Coward
        Anonymous Coward

        China will always do what's best for China regardless of the impact on other countries, China will only change it's ways when it knows it can't win.

        I'd rather have the US as the largest economy and superpower than China...Trump will be gone in 2-6 years China's leader just changed the rules to stay on idefinitely...that's a massive red flag.

        1. Lars Silver badge
          Happy

          "China's leader just changed the rules to stay on idefinitely...".

          That impressed Trump a lot. I wonder why...

          1. DJO Silver badge

            Trade and manufacturing dominance is cyclical.

            150 years ago the USA shafted Europe by wholesale IP theft and cheap labour, then one country after another took up the mantle and China is now the leader but development there will push labour costs up so another country will take the crown, probably India and then if they can sort out the corruption African states will then eclipse India.

            Yes China is being naughty but no worse than everybody else was when it was their turn to lead.

      4. sprograms

        The nation the tariffs under discussion address is the People's Republic of China. Their customs go back only to the early 1950's, the Great Leap Forward, and the Cultural Revolution. If you believe in customs before that era, especially political and religious customs, you're in big trouble.

        The Overseas Chinese? They're different. They aren't the target.

  2. Anonymous Coward
    Anonymous Coward

    So in effect new tariffs on Chinese imports are in fact a new tax on the American public. Wow. It's not like local manufacturing can be stood up to fill the demand over night. And most manufacturers will, I suspect, assume this is a temporary situation until progressive thinking and common sense prevails (i.e. new leadership!) and will just try to suck up / pass on the bill rather than build local capabilities.

    If the policy (and president) are still around in 2y time when budgets and forecasts have had time to plan for it, maybe we'll start seeing some local production.

    1. DougS Silver badge

      Not "in effect", tariffs ARE taxes

      Strange that the anti-tax coalition that was so strong in the republican party conveniently forgets one of their most strongly held beliefs while they excuse Trump's doomed trade war.

      Hopefully all the companies that were so happy to jump aboard the Trump train after he handed them a massive corporate tax cut by announcing one-time $1000 bonuses and publicizing them as due to the tax cuts will be equally forthcoming about the reasons they are raising prices. The real problem, of course, is that while they will be quick to raise their prices in response to the tariffs, when Trump finally folds and the tariffs end they will be very slow to remove them.

      Sort of like how gas prices shoot up the instant oil prices do, but take a lot longer to fall when oil prices sink.

      1. jhop

        Re: Not "in effect", tariffs ARE taxes

        Funny how prices didnt drop when the corporate tax rates were slashed.

    2. Alan Brown Silver badge

      "So in effect new tariffs on Chinese imports are in fact a new tax on the American public."

      Exactly - and every single time this kind of thing has been tried, it's ended badly for the country that's attempted to erect the trading barriers (It ended badly several times for the USA already, under populist demagogue presidents. Trump isn't the first of his type, nor even the most original liar)

      1. J. Cook Silver badge

        @Alan Brown

        Trump isn't the first of his type, nor even the most original liar

        One thing is certain: he sure is loud and annoying.

      2. sprograms

        Tariffs have worked many times

        US New England industry was built upon the first law ever passed after enactment of the US constitution. The Tariff Act of 1789 protected US manufactures and penalized consumer imports. Tariffs have been a mainstay of EU policy since the beginning. To many people have not got beyond their free trader econ 101 textbooks. China has loved tariffs, and gets special benefit, because, under the WTO, it is given preferences as a developing nation, even though the eastern 28% of it is a developed nation in most regards.

        1. DougS Silver badge

          Re: Tariffs have worked many times

          Tariffs worked 200+ years ago so they will work in today's global economy? You're going to have to provide some more recent evidence.

          China has every advantage to be able to outlast the US. They are a dictatorship, so little political pressure can be applied to the leaders by the citizens. Tariffs are against republican orthodoxy, so there will be little appetite among republican legislators to allow this to continue once they start hearing from their constituents (it is too soon to affect the upcoming election, but if they are still in force in 2020 tariffs will take down Trump and both houses of congress)

          And finally, it is a lot more difficult for US companies to leave China than it is for China to find suppliers of what they import from the US. And doing so fits in with their plans to be self sufficient - they want to encourage farmers to modernize so they can grow more corn & soybeans themselves etc. They also don't have a $20 trillion deficit like the US, but instead have a surplus (sovereign fund like the Saudis) so they can toss out cash to help industries weather temporary difficulties caused by the trade war for as long as necessary. The US can't, especially next year with the deficit projected to exceed $1 trillion (during economic growth!) so there will be little appetite for continued handouts to farmers like Trump is making to keep them on his side.

    3. Blank Reg

      A couple of years is not enough time to build any significant local production in many of the products affected. It's not just cheap labour that causes companies to move production to China. It's the entire manufacturing ecosystem where anything and everything you need to design and produce a new product from scratch can all be found in one area.

  3. Mark 85 Silver badge

    It depends on who ultimately ends up paying the extra levies: the exporter, the buyer, or the final customer.

    Since profits are involved, who will bear the cost? Not the makers, resellers, importers, that's for sure. Passing the buck.. errr.. cost of the tax is the trickledown effect. The guy at the top don't get this as the chipmakers can't build or add to manufacturing in the States quickly.

    1. big_D Silver badge

      At the end of the day, it is the customer that ends up paying. The companies can only absorb so much, the share holders want their returns, so the customer will have to pay for the price rise.

  4. GrumpyKiwi Silver badge

    Cisco - psychics

    Clearly Cisco are psychic.

    They stuck 100% on their products around this neck of the woods a year ago. Routers literally doubled in price.

  5. Ted's Toy

    Non USA residents and resellers should be excempt

    Most gear is made \not in China but Taiwan but labeled made in China thus other than Apple products and from Fox-con most would not be affected. Thus there are no price rises or duties if there is a price increase it is from Americans ripping Americans as per usual.

    1. Anonymous Coward
      Anonymous Coward

      Re: Non USA residents and resellers should be excempt

      " Non USA residents and resellers should be excempt "

      Except :

      (a) In Trump's America, its probably seen as unpatriotic not to screw the rest of the world.

      (b) Cisco are a company not exactly renowned for sensible pricing on their boxes. I suspect these prices will probably become the new list prices, and if you're spending enough money with Cisco then your sales-rep might be able to get your prices discounted back down to pre Trump-tantrum prices.

      1. Alan Brown Silver badge

        Re: Non USA residents and resellers should be excempt

        "I suspect these prices will probably become the new list prices"

        Cisco "list prices" bear little resemblence to reality. Last time I could stand to deal with a cisco reseller they offered me "85% discounts" and were _STILL_ more expensive than every competing product on the market whilst offering lower performance and fewer features.

        Of course where the "list price" comes in is on maintenance charges - which are never discounted - and when you factor those plus the additional license requirements to get the functionality you need into TOC, the "fantastic discounts" just evaporate faster than mist in the morning sunshine.

        The ironic thing of course is that Cisco got their foot in the door by being cheaper than everyone else with unlimited licenses and a fairly usable UI - now they're screaming their tits off when other companies do the same thing.

    2. DougS Silver badge

      Re: Non USA residents and resellers should be excempt

      Foxconn is a Taiwanese company but the factories that make iPhones and many many other products are in China. Apple's SoCs are fabbed by TSMC which is in Taiwan, but those chips are then exported from Taiwan to China to be assembled into iPhones. The tariffs thus capture the value of the SoC fabbed in Taiwan, the Samsung or LG OLED display made in South Korea, and even the Micron DRAM made in the USA! Tariffs are not a VAT.

      The tariffs products like the iPhone would be subject to (I think they are currently excepted, but that won't last long since Trump will feel the need to retaliate again when China refuses to buckle) would be a fraction of the amount if they were assembled somewhere else because all that stuff made outside of China wouldn't be imported in then exported out. There are some iPhones made in Brazil, maybe Apple would switch things around and have the Brazil made ones go the US to get around most of the tariff.

      As for why Cisco's price rise would affect say the UK even though the tariffs are only on the US, there are several potential reasons. One, to prevent gray market (i.e. buy in UK and ship to US to save 25%) Two, it is possible that because of the way they handle flow of inventory internally to reduce taxes everything is effectively 'imported to / exported from the US'. Three, because they believe while you might complain you'll still pay the higher price...

  6. Flocke Kroes Silver badge

    How about ...

    We are going to pay for firewalls and the Mexicans are going to build them!

    1. Anonymous South African Coward Silver badge

      Re: How about ...

      We are going to pay for firewalls and the Mexicans are going to build them!

      And in other news, all jobs in Mexico have been outsourced to India, and Mexico have been importing Indians to do slave work in factories.

  7. Anonymous Coward
    Stop

    This is only a tax if you let it be...

    Trump's not going to listen to any reason but his own; corporations will use any excuse to raise prices, and any excuse not to lower them. The only real power you have as a purchaser is to decide when, where and whether to purchase. But that's quite a power.

    So refuse to accept the 25%; cancel those Cisco orders. Once you've put aside the bullshit marketing, what does the new kit offer that your outgoing kit doesn't? Not much, I expect. It gets me cross that we're just seen as passive consumers of stuff. Time to send a message out, I think.

  8. Displacement Activity

    Meh

    "Chinese-built components coming into the US" are almost certainly assembled PCBs and systems, and are unlikely to be anything with any significant IP attached.

    I've been with companies (in the UK) who have outsourced assembly to China for 35+ years. Everybody who does this has always lived in fear that they'll be ripped off and their IP will be stolen. The upside is maybe 50% off your end-user price, and the downside is potentially losing your IP and your market completely.

    Whatever Trump does or doesn't actually say or believe, if anything, it's a fair bet that everyone in the electronics business (outside China) is breathing a sigh of relief, whatever they say in public. The dust will settle eventually, and the end result will either be that the Chinese start to play ball, or that manufacturing will return on-shore. Both of which are Ok by me. Sure, the US will take a hit short-term, but that's someone else's problem.

    1. Flocke Kroes Silver badge

      Re: Meh

      If manufacture does return to the US (or Mexico) then a 25% tax on Chinese goods will result in a 15% mark up on local manufacture plus another 9% from reduced economies of scale.

    2. Alan Brown Silver badge

      Re: Meh

      "Everybody who does this has always lived in fear that they'll be ripped off and their IP will be stolen"

      China actually has IP protection laws, but you have to play by their rules - that means registering your designs there, etc etc BEFORE you go hawking to factories for production facilities.

  9. EnviableOne Bronze badge

    No one got fired for buying Cisco

    but noone ever saved money by doing it either. Just another reason not to buy from Switchzilla.

    Their kit comes with all sorts of bells and whistles that you dont need, and probably a hardcoded root password (or two) with an auful GUI, if thats how you want to manage it.

    Personally, i'd go with one of the other vendors out there, which give you the bell and whistle you need and do what you need at half the price.

    1. Anonymous Coward
      Anonymous Coward

      Re: No one got fired for buying Cisco

      You obviously haven't seen an Arista or BigSwitch quote recently... The apples-to-apples spread between the cheapest white-box switch with Cumulus and the most expensive, premium Cisco product is about 20%. Compute has a similarly narrow range.

      Contrast those with storage where the spread from JBOD to EMC or VSAN is >300%, or Hypervisors where the KVM to VMware spread is >400%.

  10. PapaD

    Very much not an expert, so....

    What happens if the US companies that use Chinese parts to manufacture their technological goods start moving their locations that put all the Chinese parts together out to other cheap countries, assemble the parts and then ship the whole item to the US.

    Does that mean the item is now coming from the new country, and not China - or does the tariff still apply for the Chinese parts in the completed product.

    (i.e. what if Apple put all the pieces together in Mexico, or some other Central or South American country, and just ship completed products to the USA - does that bypass the Tariff, and essentially negate the need to build expensive manufacturing arms in the USA?)

    Hoping someone with a much better understanding of the way these things works can answer this.

    1. Anonymous Coward
      Boffin

      Re: Very much not an expert, so....

      What happens if the US companies that use Chinese parts to manufacture their technological goods start moving their locations that put all the Chinese parts together out to other cheap countries

      I would guess that in the detail of WTO rules, there's rules on the added value of each country, and what then constitutes a US, Chinese, Thai, British, German export. Broadly speaking, trade tariffs are crude instruments, and in the situation you describe, the parts imported to (say) Thailand from China to be assembled and exported to the US wouldn't be subject to China only tariffs unless the Thai component was low value (like driving two screws, polishing the case, sticking it in a box).

      The trade authorities are aware of tariff tourism, and will stamp on anything that comes to their attention and looks suspect. And that is their secret weapon: doubt. If there's any question over whether goods have the right tariff paid, or are attempting to evade duties, then they can hold up imports for as long as they see necessary. That paralyses cash flow, with tech goods there's a huge risk from a few weeks or months delay in customs quarantine. No manufacturer wants to take that risk, so compliance is better than evasion.

      I must say, you can question Trump's methods (values, behaviours, morals....) but actually he's doing the right thing in principle. US corporations and China have benefited immensely from exporting US jobs to China, whereas the US nation has built up a vast trade deficit with China because China buys little in return, and US workers have suffered from a hollowing out of lower middle class employment. The only benefit to the US has been that the elite and the still-employed middle class get their goods cheaper, whilst averting their eyes from the unemployed, the two-job economy, the gig economy, and the laughable "sharing economy". Normally the exchange rate would fix these imbalances, but in the modern world it doesn't seem to work like it used to, not to mention the fact that the US suffers the curse of being world reserve currency. As always, that benefits bankers, and shits on the rest of the population.

  11. herman Silver badge

    If they would build their kit in the USA, there would be no problem.

    1. Velv Silver badge
      Boffin

      Build what?

      Import all the raw materials from China to make the silicon billets?

      Import the silicon billets from China but manufacture the silicon wafers?

      Import the silicon wafers from China but fab the chips?

      Import the chips and assemble the boards?

      Import the boards and assemble the products?

      It’s tariffs all the way down!!!

  12. cweinhold

    Country-of-origin labeling

    I don't know what it means with regard to tariffs, China, Trump, and tech, but I still giggle at some country-of-origin labeling:

    http://beeline.org/country-of-origin.jpg

  13. Alan Brown Silver badge

    Should only

    affect pricing in the USA.

    But of course CIsco will use it as an excuse to jack up pricing worldwide - and render themselves uncompetitive in the process.

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