“It’s Not as Easy as You Think,” or Is It?
China has proved to be a tough competitor in the display space, over time, replacing South Korea as the largest producer of LCD displays, however much of that competitive success comes from the fact that the Chinese government has been a very substantial supporter of the Chinese display industry through subsidies that have covered both construction and operating expenses. We do give credit to Chinese display manufacturers who have taken full advantage of said subsidies and used it to expand capacity when given the opportunity. As the subsides reduce construction costs, therefore reducing interest costs on loans, reduce operating costs, along with a substantial lower wage base and cost of living, have given China’s display space the ability to outgrow and out-compete South Korea’s LCD display industry.
South Korea’s response, going back a number of years was to reduce its exposure to the generic LCD panel market and emphasize OLED displays and any product that might be considered ‘premium’ or even ‘non-generic’, which has helped Korea to maintain leadership status in the OLED display space. The US however has no display manufacturing, although it is the world’s 2nd largest consumer (North America) of products that contain display panels (LCD or OLED), and while APAC consumes 54.7% of products with display panels, North America accounts for 22.9% of that market (2022), with Europe at 11.6%. That said, we do not believe that the US is well suited to host generic LCD display manufacturing, given the salary and cost of living differential with China.
South Korea’s response, going back a number of years was to reduce its exposure to the generic LCD panel market and emphasize OLED displays and any product that might be considered ‘premium’ or even ‘non-generic’, which has helped Korea to maintain leadership status in the OLED display space. The US however has no display manufacturing, although it is the world’s 2nd largest consumer (North America) of products that contain display panels (LCD or OLED), and while APAC consumes 54.7% of products with display panels, North America accounts for 22.9% of that market (2022), with Europe at 11.6%. That said, we do not believe that the US is well suited to host generic LCD display manufacturing, given the salary and cost of living differential with China.
While the US has made very significant attempts to curtail China’s semiconductor industry growth through onerous trade restrictions and licensing, as the US does not compete directly with China in the display space, there has been little effort by the US to step on China’s dominance of the display industry. In fact, in July of 2018 the Trump administration targeted $34b worth of Chinese goods, including TVs, laptops, and smartphones, and in September of the same year added tariffs on an additional $160b in Chinese imports that pointedly expanded the range of tariffed CE products. In January 2020 $120b of those tariffs ended with the signing of the Phase One Economic & Trade Agreement in January 2020.
More recently, there has been talk on Capitol Hill of restoring tariffs on TVs and possibly TV panels that are made in China and considering that China has ~57% of the world’s LCD display capacity, any new tariffs on LCD display panels would add to the price burden already imposed on consumers due to the rising prices of LCD panels themselves. With ~80% of TV sets (global) produced in China, new tariffs on TV sets would have a similar, if not greater effect on CE prices. Our issue is that there is no benefit to placing tariffs on Chinese LCD panels or TV sets other than from a political standpoint, and the US consumer will bare the burden of the fiscal cost. Perhaps it will put the US in a stronger negotiating position with China that will potentially reap other benefits, but especially during a period of inflation and rising panel prices, it is hard to justify same, especially as the US has no generic LCD production industry.
Last year both houses of Congress passed legislation known as the American Competition Act of 2022, a bi-partisan bill that would allocate $250b over 5 years toward R&D, manufacturing, workforce development, and the development of a local supply chain, with a key provision being a 40% tax credit for investments in domestic manufacturing of advanced display technologies. While the bill passed both houses, it was never enacted as the differences between the bills passed in the Senate and the House could not be ironed out, and the definition of advanced display technologies was left unspecified. As tax credits are involved, it would eventually be up to the IRS to set the legal definition, but the bill still sits in committee as both sides try to come to terms on the details.
It would seem more productive over the long-term to use the same subsidies that have been used in China (at least for construction), rather than the financial burdens imposed by new tariffs, but we are but lowly taxpayers and consumers who have little knowledge of the inner workings of the government, especially when compared to the career politicians that remind us regularly that “it’s not as easy as you think.”
Here's the relevant section of the Act:
Section 1002. Advanced Manufacturing Production Tax Credit.
(a) In general—Chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new section:
(f) Advanced manufacturing production tax credit--
(1) In general—In the case of a taxpayer who manufactures an eligible component in the United States and sells the eligible component to an unrelated party, the taxpayer shall be allowed a credit against the tax imposed by this chapter in an amount equal to 40 percent of the cost of production of the eligible component.
(2) Eligible component—For purposes of this subsection, the term ‘eligible component’ means any component that is--
(A) manufactured in the United States.
(B) used in the production of an advanced display technology; and
(C) not manufactured in the United States by a related person of the taxpayer.
More recently, there has been talk on Capitol Hill of restoring tariffs on TVs and possibly TV panels that are made in China and considering that China has ~57% of the world’s LCD display capacity, any new tariffs on LCD display panels would add to the price burden already imposed on consumers due to the rising prices of LCD panels themselves. With ~80% of TV sets (global) produced in China, new tariffs on TV sets would have a similar, if not greater effect on CE prices. Our issue is that there is no benefit to placing tariffs on Chinese LCD panels or TV sets other than from a political standpoint, and the US consumer will bare the burden of the fiscal cost. Perhaps it will put the US in a stronger negotiating position with China that will potentially reap other benefits, but especially during a period of inflation and rising panel prices, it is hard to justify same, especially as the US has no generic LCD production industry.
Last year both houses of Congress passed legislation known as the American Competition Act of 2022, a bi-partisan bill that would allocate $250b over 5 years toward R&D, manufacturing, workforce development, and the development of a local supply chain, with a key provision being a 40% tax credit for investments in domestic manufacturing of advanced display technologies. While the bill passed both houses, it was never enacted as the differences between the bills passed in the Senate and the House could not be ironed out, and the definition of advanced display technologies was left unspecified. As tax credits are involved, it would eventually be up to the IRS to set the legal definition, but the bill still sits in committee as both sides try to come to terms on the details.
It would seem more productive over the long-term to use the same subsidies that have been used in China (at least for construction), rather than the financial burdens imposed by new tariffs, but we are but lowly taxpayers and consumers who have little knowledge of the inner workings of the government, especially when compared to the career politicians that remind us regularly that “it’s not as easy as you think.”
Here's the relevant section of the Act:
Section 1002. Advanced Manufacturing Production Tax Credit.
(a) In general—Chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new section:
(f) Advanced manufacturing production tax credit--
(1) In general—In the case of a taxpayer who manufactures an eligible component in the United States and sells the eligible component to an unrelated party, the taxpayer shall be allowed a credit against the tax imposed by this chapter in an amount equal to 40 percent of the cost of production of the eligible component.
(2) Eligible component—For purposes of this subsection, the term ‘eligible component’ means any component that is--
(A) manufactured in the United States.
(B) used in the production of an advanced display technology; and
(C) not manufactured in the United States by a related person of the taxpayer.
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