The timing of the global battle over trade and tariffs sparked off by President Trump over the past weeks is pretty dreadful for a lot of industries, and the video games sector is no exception.
At the point when I’m writing this, most of the heavy tariffs have been paused for 90 days, though a massive 104% tariff on products from China remains in place; however, even the fallback position of a blanket 10% tariff on every other country the United States trades with is still a far higher trade barrier than the norm.
Other countries’ retaliatory tariffs will probably also be soft-pedalled for a while following the temporary pause – although, of course, by the time you’re reading this the world economy could easily have been turned on its head again.
Nintendo’s Switch 2 has become something of a poster child for this whole affair, with the long-anticipated console finally having its pricing and launch date revealed almost directly before Trump’s tariffs were announced.
Switch 2 was a perfect example case for the media to use to demonstrate the impact of tariffs on consumers
Nintendo assembles most of its consoles in Vietnam, which was hit with one of the highest tariff rates in the original announcement – a staggering 46%, which was apparently far outside the company’s projections.
It has delayed the pre-order program for the Switch 2 in the United States while it tries to figure out how to handle this huge extra cost on what was already a very expensive console. Even the 10% tariff which will apply during this three-month respite threatens to push the cost of the Switch 2 up to the $500 mark.
If the threatened 46% tariff is ever implemented, the console could end up costing over $650.
As a hotly anticipated new product, Switch 2 was a perfect example case for the media to use to demonstrate the impact of tariffs on consumers. Of course, it’s far from being the only product that will be hit; most gaming hardware is manufactured in Asia, whether it’s consoles, PC components, or accessories.
Vietnam is a major supplier for a lot of this hardware, as is Taiwan (32% proposed tariffs) and Thailand (36%). Perhaps ironically, the South-East Asian nations have become popular destinations for high-tech factories precisely because of a desire to mitigate the risks of escalating trade tensions by diversifying supply chains away from China.
China itself is also a major supplier of things like PC components and accessories, with a 104% tariff likely being a death knell for US sales of many of those products.
For Nintendo, the timing couldn’t be worse – Switch 2 is on course for a launch on June 5 and there’s not a whole lot of strategic wiggle room in there. Some reports have suggested that the company has even stockpiled hardware in the US already, bringing it in before the tariffs took effect, although this is obviously not a long-term solution.
Suggestions that production lines for Switch 2 could be established in the US to get around the tariffs ignore the incredibly long lead time for setting up that kind of manufacturing, but also just push the problem upstream a little.
Even if Nintendo could assemble Switch 2 in the USA, most of the components in the system can’t be sourced domestically and would have to come into the US from places like Taiwan – so there would still be a heavy import tariff to be paid regardless.
There is one silver lining on this cloud, for now at least: the tariffs announced and discussed thus far have been entirely focused on physically imported goods and materials
For Sony and Microsoft, the situation is also dire – tariffs on Switch 2 may attract headlines, but major price bumps to PlayStation and Xbox hardware will hurt too – but with their next big hardware launches a bit further down the line, they can at least think a little strategically about how to address this problem.
Only a little, though. There’s not much clarity on how this situation will develop in the coming months and years, and it’s almost impossible to say how the trade environment will evolve during that time.
This makes planning exceptionally difficult, and one of the only sensible options these companies will have at their disposal may be to push the launch windows for their future hardware back, potentially even past the end of the current administration’s term in office, and hope that things will have settled down by that point.
There is one silver lining on this cloud, for now at least: the tariffs announced and discussed thus far have been entirely focused on physically imported goods and materials, and do not apply to digital goods. In other words, while the hardware is likely to get a lot more expensive, the games themselves are unlikely to be directly affected.
There will be indirect effects, of course – there are lots of inputs into the development and provision of games that will be impacted by tariffs, from the hardware developers use to create them to the servers and data centres that provide online gaming services, all of which are going to get more expensive.
Games themselves, however, won’t be subject to tariffs when sold digitally, and unlike hardware manufacture, moving the production of physical game discs into the USA is a more realistic prospect.
Nintendo, though, is going to get hit with an extra curveball here: it’s my understanding that the cartridges it uses for Switch games are all manufactured in Japan, using chips from a Taiwanese supplier, so shifting that production to the USA looks extremely challenging.
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Digital products being shielded from the worst of what’s happening is by no means guaranteed in the long run.
Some of the retaliatory measures that trading partners like the European Union have been discussing in recent weeks have included placing tariffs or restrictions on non-physical trade such as services, digital businesses, or even US-owned intellectual property.
These are primarily being described as instruments to target specific parts of the US economy, but they would in effect be an escalation – and while the games industry isn’t an especially notable political target in this trade conflict, it would almost certainly get caught in the crossfire if digital trade tariffs are announced on either side.
There’s no room for complacency in any regard, and little certainty about the future – a pretty grim state of affairs for an industry that’s still to some extent picking itself up after rising interest rates sparked a huge wave of layoffs and closures a couple of years ago.
From a strategic perspective, perhaps the biggest problem is that this is happening at a point when the entire industry has been trying to slowly ease consumers towards acceptance of higher pricing for both software and hardware, in line with a couple of decades’ worth of inflation that’s largely not been reflected in pricing.
If even the 10% fallback tariffs become fixed in place in the medium to long term, it will make pricing even more difficult to adjust and will likely force a strategic shift around the next generation of console hardware in particular.
Of course, if the global economy is still reeling from all of this by that point, that may be the least of most people’s worries – but for an industry that needs to plan ahead on multi-year timelines, the next few years just got riskier and more uncertain than ever.
