The Impact of US-China Tariff Escalation on the LED Display Industry and Strategic Responses

1. Escalating Costs and Dual Pressure on Orders and Profits

The most immediate consequence of the tariff hikes is the dramatic rise in export costs, which has been the most pressing challenge for Chinese manufacturers of LED displays, especially those involved in custom-shaped panels. Consider the example of Wanxiu International, which reported a 20% decline in order volume and a 15% contraction in net profit margins in the past year. Customers in the United States are increasingly turning to Southeast Asia, such as Vietnam and Thailand, where tariff barriers are lower.

Key statistics underscore the significance of the US market for Chinese LED exports:

• The US represents 11%-14% of China’s total LED exports, making it one of the largest markets.

• In the color display segment, the US is the largest export market, accounting for 24% of Chinese LED exports.

The impact of these tariffs on such a critical market is profound: the price competitiveness of Chinese LED displays in the US has been severely eroded, leading to diminished sales and a shrinking market share. This has forced manufacturers to either absorb the tariff burden, cut profit margins, or risk losing their foothold in a high-value market.

2. Market Share Shifts: Loss of High-Margin Business

For many Chinese LED manufacturers, the US has not only been the largest export market but also a key source of high-margin business. Financial reports from major public companies show that North America (especially the US) consistently offered higher sales prices and profit margins compared to other global regions. Many Chinese companies had positioned their products as premium offerings within this market, particularly targeting sectors like:

• High-end retail installations

• Live entertainment and sports broadcasting

• Public art and digital signage

However, the escalation in tariffs has made these premium, high-value orders much more difficult to secure. In 2024, for instance, one Chinese firm reported transactions worth as much as RMB 52 million ($7.6 million) for a single deal in the US, with the average contract size remaining high due to the high-end nature of the products. The 25%-30% tariff increase directly threatens this lucrative market, leading many companies to reconsider their US market exposure.

3. Supply Chain Restructuring: Relocation and the Search for Alternatives

In response to the higher tariff rates, many LED display manufacturers are shifting their production lines and supply chains to other countries. Several companies have already established production facilities in Vietnam, Malaysia, and Mexico as part of their strategy to bypass US tariffs. While this approach might seem like a viable solution, it brings its own set of challenges:

• US “penetrating investigations”: These investigations scrutinize the origin of products and may undermine the effectiveness of transshipment (shipping goods through third-party countries).

• Complexity of global supply chain management: Establishing and maintaining operations in new countries requires significant upfront investment, not to mention dealing with different regulatory environments, labor markets, and supply chain intricacies.

• Rising costs: While tariffs may be avoided, manufacturing in Southeast Asia is not without its challenges. Labor costs in these regions are rising, and production quality control issues can also be more difficult to manage at a distance.

These shifts are not always simple or effective in maintaining the same competitive pricing, and the overall complexity and uncertainty of global supply chains have increased significantly.