The issue of the US-China trade war has come up in emails and phone calls with customers, and we wanted to address the issue and its impact on our supply chain.
We don't anticipate a need to increase our US prices over the next 8-12 months. However, you may have noticed that coupon codes that once worked are no longer valid and that our products are no longer being offered in certain venues.
You will notice that we've eliminated Amazon Prime shipping and free shipping options if you try to buy our products on Amazon.
We intend to continue to offer free US shipping on our site through the end of 2019, although there is now a minimum order of $25 to qualify for free shipping. We are studying the potential risk of removing our products from marketplaces like Amazon after the 2019 holiday season. Typically, these marketplaces serve as valuable channels for discovery, but we find that we can better explain our value proposition via our dealer network.
While tariffs have increased from 10% to 25% and have now reached 30% on most products, this has been partially-offset in the commodity LED market by oversupply and reduced demand for chips.
We don't benefit from this oversupply. Our Colorgrade SMD (surface mount device) LED chips are custom-made, and don't directly benefit from reduced commodity chip prices. Due to pricing and supply uncertainty, we are now producing fewer of our products at any given time and are paying more for lower volumes.
We've been able to reduce the impact by establishing an international distribution network. We now warehouse our lights overseas and only pay tariffs on units that we import specifically for the US market. Units sold elsewhere never touch US soil.
We've also started to refurbish "good as new" returns in the USA rather than send parts back to China (where they'd be subjected to retaliatory tariffs) to be stripped down for parts and recycled.
Some have asked, "why not move your manufacturing to the USA?" Our answer is that our suppliers would need to move to the USA as well, otherwise, the trade war would simply cause larger loses.
Our products are already among the most expensive in a field where our competitors manufacture and/or assemble in China. Many of the parts, such as dimmers and switches would still need to be imported from China, incurring tariffs, and we currently pay tariffs even on the parts, such as LED chips, that are not sourced in China because they use phosphors and materials that are imported from China.
It would also take a minimum of 24 months to get up and running. Many of the machines used to automate production are manufactured in China and we'd also pay tariffs on the imported raw materials -- all while facing the possibility that these tariffs will be eliminated on the whim of a mercurial president or after the election of a president with different views on trade negotiations and tariffs.