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World Wide Technology CEO: China Tariffs Creating 'A Bit Of Chaos'

‘Whether right, wrong or indifferent in regards to what the administration is doing there – at the end of the day, it is having an impact on our business,’ says WWT CEO James Kavanaugh.

As global networking leaders like Cisco and Juniper Networks raise prices on products as a result of the Trump administration's tariffs on China, channel partner powerhouses like World Wide Technology are feeling the pressure.

"It's really hard to determine the long-term impact, but I can tell you short-term, it is creating a bit of chaos," said James Kavanaugh, CEO and co-founder of Maryland Heights, Mo.-based WWT, ranked No. 7 on CRN's 2018 Solution Provider 500 list.

Kavanaugh said the 10 percent tariffs on $200 billion of imports from China, which took effect last month, is forcing his entire organization to go on "high alert" in understanding the price changes of different vendor products.

[Related: World Wide Technology CEO Jim Kavanaugh: 10 Biggest Bets For 2019]

"We're looking at, 'Is the pricing going to change? What's the impact to our customers? How do we make sure that all of that is communicated with a high level of clarity and alignment with our supplier partners and our customers to make sure nobody is left in a lurch on this?'" said Kavanaugh. "Whether right, wrong or indifferent in regards to what the administration is doing there – at the end of the day, it is having an impact on our business."

The Trump administration's tariffs are expected to rise to 25 percent on Jan. 1, 2019.

The U.S. trade war with China and other countries could reduce global economic growth by more than 0.8 percent in 2020, according to a study this month by the International Monetary Fund (IMF). Assuming the U.S. implements the 25 percent tariff increase, the U.S. could lose more than 0.9 percent of its GDP in 2019, according to the IMF.

Some vendors have gone on the offensive to address potential product cost increases by pledging to not raise prices. Alcatel-Lucent Enterprise announced this month that it will not raise prices on enterprise networking products and services before 2019.

"To offset the inevitable earnings impact, many vendors have chosen to pass the cost through to channel partners and customers by immediately increasing prices. ALE will absorb the current 10 percent increase and give partners the opportunity to place orders before a potential need to adjust pricing in the new year," said the company in a statement to CRN. "Unplanned price hikes from OEMs can wreak havoc on companies with inflexible budgets. While ALE is agreeing to take the initial revenue hit, the company views customer loyalty as a critical business driver."

VirtuIT President Michael Murphy said the tariffs could potentially hurt some deals for the channel in the near term.

"In organizations where budgets are tight, especially public sector, it could stand to derail or slow down some deals," said Murphy, of his Nanuet, N.Y.-based solution provider. "The IT industry is used to price fluctuation such as disk drives and memory -- those are market commodities that do go up and down. We're conformable with telling customers, 'Hey, you better get [your purchase order] in by this quarter because disks are going to go up or memory is going to go up.' It will be a little bit bumpy with the tariffs, but overall the industry will absorb it."

Kavanaugh said WWT has had a few customers looking to make anticipated buys based on the tariff increases that could happen next year.

"I wouldn't say that is anything broad-based, but we've had a few looking at that," he said. "The best thing I and we can do, is being as transparent as possible with our customers because we cannot afford to absorb the cost increase that would be passed on because of these [tariffs.] That's just not baked into the margin that we have."

In August, Juniper, Cisco, Dell and Hewlett Packard Enterprise sent a letter to U.S. Trade Representative Robert Lighthizer, urging him to hold off on imposing tariffs on China.

"If the USTR were to impose a 10 [percent to] 25 percent additional duty on networking products and accessories, it would cause broad, disproportionate economic harm to U.S. interests, including our companies and U.S. workers, our customers, U.S. consumers and broader U.S. economic and strategic priorities," the letter to Lighthizer said.

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