Will this be the month the music dies? That is the question posed by economists from the Peterson Institute of International Economics (PIIE), who have revealed that scores and scores of musical instruments could be hit hard by US President Donald Trump’s tariff policy.
“That’s because the musical instrument market is highly globalized, and threatened (60%) tariffs on China, in particular, will hit the entry-level market – students, teenagers looking to turn mowed lawns into rock star dreams, and cash-strapped school music programs – the hardest,” according to Cullen S. Hendrix, a senior research member at the PIIE, who said production could be reoriented to Indonesia at a much higher cost (10-20%) – a move that would have major implications for global consumers of musical instruments.
“Like other regressive aspects of Trump’s tariffs, the hardest-hit segment will be lower-income households and school music programs that need a reliable supply of relatively inexpensive instruments,” Hendrix said: “The irony is that the globalization of the musical instrument industry has turned out pretty well for all involved, the United States included.”
“Take the Fender Musical Instruments Corporation, the largest manufacturer of guitars. Fender produces versions of its Stratocaster in five locations: California, Mexico, Japan, Indonesia, and China.” According to Hendrix, “American-made Stratocasters are considered top of the line, made by skilled American luthiers and assembly technicians, and retail for $1,200 and up. Mexican-made Stratocasters (which could be subject to 25% tariffs from day 1 of the Trump administration) use similar components but take advantage of wage differentials to offer high-quality instruments at a lower price point ($800 to $1,350).”
At the same time, production quantities in Japan are small, tailored to Japanese tastes, and similar in price to US-built models, whilst Chinese-made and Indonesian-made “Squier” Stratocasters leverage those countries’ cost competitiveness in both inputs and labour to bring beginner-level instruments to market for $200 to $600.
“Because of its global supply chains, Fender can serve the high-end, collector-grade, mid-grade, and beginner markets in the United States and abroad. This is a textbook example of how globalization makes a wide range of products at different price points available to a global consumer base. There would be a lot fewer guitar players in the United States if the only available instruments were American-made guitars. Those teens mowing lawns for guitar money would be middle-aged by the time they saved enough to purchase an American-made Strat. And American-made guitars would have a smaller market if they could not be sold globally.”
It’s not just guitars; with brass, woodwind, and stringed instruments tied up in the tariffs.
And it’s not just in guitar production; the same applies to brass, woodwind, and stringed instruments. “Yamaha (for example) produces professional grade trumpets in Japan but manufactures entry-level student models in China. Ditto woodwind and stringed instruments,” Hendrix said. “The same story is true of Germany’s Sonor Drums – the R&D, product design, and high-end drums are German-made, but entry-level drum sets are produced in China.”
As it stands, the global trade in musical instruments is dominated by a small set of exporters and importers, all with large market shares: “The top ten exporters account for 85% of global exports,” Hendrix said, with China and Indonesia the largest exporters, whilst the United States, United Kingdom, and Australia run the largest deficits in instruments.
“These patterns make sense if one considers musical instruments luxury goods: The market for the high-end products produced in advanced economies is inherently smaller – and for the US, more dominated by US-based consumers rather than exports – than the market for lower-end products produced by China and Indonesia, which serves not just the entry-level market in advanced economies but professional and gigging players in developing and middle-income countries,” Hendrix said.
Why Trump’s tariffs will add billions to the cost of timber products.
Last month, a report published by PIIE revealed that tariffs would add at least $25 billion to the cost of timber imports alone – with forest products one of the industries with near-zero tariffs across the vast majority of countries where the United States has free trade agreements:
“The tariff on Chinese furniture and plywood will jump from 16.2% to 60%, while tariffs on more than US $3 billion worth of Canadian softwood lumber jumping from 14.54% to 25%,” according to Julieta Contreras, Mary Lovely and Jing Yan, who said “A tariff of 60% on China would be a major shock to international goods markets,” adding that after the 2018–19 China-US trade war, “62% of US imports from China are subject to an average tariff rate of 16%, far below the rate promised by Trump on the campaign trail.”
- To learn more about Donald Trump’s plans to use tariffs (and thus lift timber prices), click here for Wood Central’s special feature from earlier this month.
