The past few months have certainly seen its twists and turns when it comes to the looming “trade war” between the United States and China; in fact, on May 29, President Trump pivoted from a sort of temporary “cease-fire” to announce that the United States will impose a 25-percent tariff on $50 billion of “goods imported from China containing industrially significant technology.”
The White House says the final list of covered imports will be announced by June 15; however, thanks to a previously published list of products and technologies already targeted for proposed tariffs (outlined in great detail at http://ustr.gov/sites/default/files/files/Press/Releases/301FRN.pdf), the security industry should have a pretty good indication of what products will appear on the final list.
If the tariffs are eventually adopted, it will have a ripple effect across the security industry – with major effects on dealers, integrators, vendors and distributors. SD&I has delved deeply into this proposed tariff list and come up with the following list of affected products/product categories:
- Video cameras (circuit boards/internal parts and lenses);
- Batteries and UPS devices;
- Fiber optic cable;
- Coaxial connectors;
- Media conversion and solid state media storage;
- LED lighting;
- Video monitors and displays;
- Touchscreens; and
- Helicopter parts (for aerial drones).
“The inclusion of many of these products will directly hurt U.S. companies by increasing the cost of key components needed to manufacture or integrate security systems,” Don Erickson, CEO of the Security Industry Association (SIA), wrote in a formal letter of opposition that was sent to the federal government. “In many cases, there are few if any realistic alternative sources that can be pursued without significant supply chain disruption.”
What would happen to our industry if all of these products coming from China cost 25 percent more than they do today?
“I can tell you for a fact that security integrators are not going to eat the 25 percent,” says Bill Bozeman, President and CEO of the PSA Security Network of integrators. “They will have to pass it through to the end-user in 95 percent of the cases. Even for the 5 percent who might eat those costs, it will only be a strategic move to gain market share – a loss leader type of mentality that some integrators and manufacturers utilize.
“The big question is, if that’s the case, will it impact sales growth,” Bozeman asks. “Products are only a certain percentage of the whole package, but if things go up, for example, 9-10 percent, will it have an impact on sales as things get more expensive?”
SIA maintains that any such threat to the costs of security products and components could have dire repercussions. “Imposition of tariffs on these products would have a significant negative impact on our industry’s ability to export and continue to grow in the United States, puts jobs at risk for U.S. workers, and will make it more difficult for our members to respond to U.S. customer demand – an issue which, for an industry striving to provide the most effective security and life safety solutions, has consequences that go well beyond the bottom-line,” Erickson wrote.
Product-by-Product Impact
Here is our in-depth review of the potential impacts of the proposed tariffs on a technology-by-technology basis for security, security applied sciences, cybersecurity and Information and Communication Technology (ICT) infrastructure. The products cited in the official U.S. Trade Representative’s Office (USTR) document (USTR-2018-0005) are classified in 8-digit subheadings; thus, where possible, the Harmonized Tariff Schedule (HTS) eight digit number will be listed for reference purposes, followed by its projected impact.
Batteries
85065000, 85066000, 85069000, 85073080, 85079040, 85079080: Lithium, NiCad batteries and Lead-Acid battery components.
Opinion: High Industry Impact
Lithium ion and NiCad batteries, as well as components for lead-acid batteries are on the tariff list, which, together with Lithium batteries, are used in electronic locks, surveillance power supply battery backup systems, Uninterrupted Power Supplies (UPS), solar-powered video surveillance cameras and communications stations.
The majority of new home energy storage systems and alarm systems use some form of lithium ion battery. Lithium ion batteries are lighter and more compact than lead acid batteries, have a higher depth of discharge (DoD) and longer lifespan; however, lithium ion batteries are more expensive than their NiCad and lead acid counterparts.
With a 38-percent import share of the total market and China’s share at 35 percent (according to Euromonitor International), the batteries and electrical equipment industry would experience a high impact due to the new tariffs. In addition to the security industry, battery systems are in significant use in telecommunications and ICT.
The battery tariff would also impact solar power. The three biggest residential solar installation companies in the United States – SolarCity, Vivint Solar and Sunrun – each have potential growth, and in Vivint’s case, leadership in the home security market. Lithium ion batteries and components for lead-acid batteries are both used heavily in solar power systems.
Circuit Boards and Relays
85299009 (printed circuit assemblies for television cameras); 85364100, 85364900 (any device using control switching relays, such as access control, lockdown and life safety systems).
Opinion: High Industry Impact
With China’s dominant role in producing electronic components, board assemblies, Systems on Chip (SoC), storage devices and microcomputers, it is virtually impossible for manufacturers to avoid Chinese parts suppliers.
Semiconductor firms like Intel, Texas Instruments, Nvidia and Qualcomm have a large manufacturing presence in China and represent vital components used in security and ICT network infrastructure devices, such as switches, routers, access points and Power-over-Ethernet (PoE) midspans.
These companies all have established manufacturing plants in China and sell processors to Chinese tech companies, which use them not only in phones and computers, but also security systems performing access control and complex video analytics. Intel, for example, generated nearly a quarter of its 2017 sales from China.
Many of these manufacturers sell electronic timers, power supply boards, programmable logic controllers, media converters, switches, microcomputers, Ethernet accessories and wireless devices to the security industry.
The question of whether components within products that are assembled somewhere other than China will be taxed or subject to tariffs remains unanswered. The USTR has not yet provided a “blanket” interpretation on the component vs. assembly containing the component made in China issue, but if the tariffs go into effect, it will be a central issue.
Video Surveillance Lenses
85299078: Mounted lenses for use in CCTV cameras, with or w/o connections included in motorized zoom or lens apertures powered by DC motors.
Opinion: High Industry Impact
Virtually every surveillance camera sold for security purposes uses an optical lens to project the image on the imaging sensor. Any optical lens or device used as a lens – such as “pinhole” adapters used in covert video surveillance cameras – is included as a tariff item.
This may or may not be subject to interpretation, as many lenses manufactured in China are included in camera assemblies that are manufactured and/or assembled in other countries. Again, this is an ongoing issue with the interpretation of the tariffs – should assemblies of individual components manufactured in China be deemed exempt by the USTR, the industry impact would likely change to “Low Industry Impact.”
Coaxial Cable Connectors
85366940: Coaxial cable connectors, or any video surveillance device or cable using coaxial connections (ie. analog cameras and cables).
Opinion: High Industry Impact
Although IP video, IP access control, Voice-over-IP and other communications devices have become a “best practice” to specify and use in most security solutions, there are still a significant amount of analog video cameras still in operation and being procured. Virtually all of the connectors for these devices are included in the tariff list.
Mechanical, Optical and Solid State Storage Devices
85234100, 85234920, 85234930, 85234950, 85238010, 85238020, 84717040, 84717060, 84717090
Opinion: High Industry Impact
One of the most significant growing markets is the use of solid state drives and non-volatile memory using flash memory cards and both are called out in this group. Indeed, this is a very broad category, as Automatic Data Processing (ADP) equipment includes firmware, software, and input/output storage; thus, DVRs, storage appliances and more could be affected.
Both non-volatile solid state and magnetic storage are directly called out with these tariffs, so the following are impacted:
- “Traditional” Non-Volatile Storage (NVS): mechanical hard disks (HDD), CD-ROM and DVD optical disks.
- Non-volatile memory (NVM) storage: Solid State Drives (SSD), Non-Volatile Memory chips (SD Cards, MicroSD Cards, MMC Cards, CompactFlash Cards, EEPROM, NAND and other forms of flash memory storage.
Fiber Optic Cable
85447000: Fiber optic cables where the individual fibers are “sheathed”
Opinion: High Industry Impact
Fiber optic cables and, more specifically, the bundle of fiber optic strands in a single housing where each strand is sheathed or covered with a protective insulation or coating, are widely used in outdoor communications infrastructure supporting security devices such as IP video cameras that require significant bandwidth. A trade restriction on any type of fiber optic cable would pose a significant impact on the security industry, as the infrastructure must be designed, budgeted, tested and commissioned in place prior to any security device using that data transport method.
Both multi-mode and single-mode fiber optic cables are also used in
interior building applications, especially in risers and to provide high-capacity links between telecommunication rooms and the main distribution frames.
As a result of technological advances, optical fiber cables may not always be comprised of optical fibers that are covered with the traditional, thick, protective, removable plastic – instead they are coated by the application of a thin primary inking or coating applied primarily for color-coding. It is subject to interpretation whether this would constitute a “sheath” for the purposes of this trade restriction.
In any case, this would be significantly bad news for the ICT and security industries. Since cellular towers rely on fiber optic infrastructure to aggregate communications data, it is conceivable that this could have an even wider-ranging impact on the cellular data, data center and cloud hosting industries.
LED Lighting and Components
85414020, 85414070, 85414080, 85414095, 85415000, 85416000, 85419000: LEDs, Photosensitive semiconductor devices and transistors.
Opinion: High to Medium Industry Impact
With LED components on the tariff list, impact on the security industry can either be high or low, depending on whether it applies to LED assemblies and lighting systems purchased as a package from China, or if they are applicable to only LED components purchased from China and made part of assemblies sold in the United States.
Products using LEDs, corporate campuses and properties using LED and smart lighting, as well as portable lighting products used by first responders and security guards will be affected.
Visible light and infrared illuminators used in IP video and other systems requiring augmented illumination also contain LED components. Multi-mode fiber optic transceivers use LEDs for transmission. Also, of course, are LED monitors that are used in control center and monitoring environments.
Electrical Components, Touchscreens and Enclosures
85365090, 85369085, 85371060, 85371080, 85372000, 85381000, 85389040
Opinion: Medium Industry Impact
Switches, touchscreens, electrical component-level temperature sensors, enclosures, equipment consoles and rack assemblies commonly used in security applications all fall under these categories. Many of these tariffs would apply to devices using control switching relays, such as access control, lockdown and life safety systems.
Radar Systems
85261000, 85291040, 85299016, 85299019, 85299073, 85299095, 85299097
Opinion: Medium Industry Impact
Radar systems have become more popular for perimeter protection; in fact, Axis Communications introduced a Network Radar Detector for outdoor motion detection less than a year ago. That said, alternatives to radar are emerging, including LiDAR, (Light Detection and Ranging), which uses light in the form of a pulsed laser to measure variable distances from and generate precise, three-dimensional information about objects (read more in the sidebar below).
Aerial Drones
88033000
Opinion: Medium Industry Impact
Unmanned Aerial Vehicles (UAVs) are still finding their place among the arsenal of security integrators; however, evidenced by their growing popularity on security trade show floors, they are becoming more and more viable by the day.
In addition to their obvious applications for perimeter security, some integrators are even leveraging the power of drones to simplify the site survey and video surveillance installation process (read more at www.securityinfowatch.com/12400910).
Steve Surfaro is Chairman of the Public Safety Working Group for the Security Industry Association (SIA) and has more than 30 years of security industry experience. He is a subject matter expert in smart cities and buildings, cybersecurity, forensic video, data science, command center design and first responder technologies. Follow him on Twitter, @stevesurf.
Paul Rothman is Editor in Chief of Security Dealer & Integrator (SD&I) magazine. Access the current issue, full archives, and apply for a free subscription at www.secdealer.com.
SIDEBAR - Alternative Product Choices
While not feasible in some instances, integrators may have to consider alternative technologies to ones with unavoidable tariffs.
Information and Communications Technology (ICT) cabling infrastructure can be a potential alternative to fiber optics. It involves the cost-effective design and construction of telecommunications distribution infrastructure for all facilities, smart cities and intelligent buildings. In short, it is the Structured Cabling Systems (SCS) and network infrastructure systems that support physical security, cybersecurity, safety and environmental systems from edge to server to the cloud.
Power-over-Ethernet (PoE) is a safety extra-low voltage (SELV) application, inherently safe to use in all workplace, school and university, healthcare, residential and other environments. By eliminating the need for expensive electrical outlet connections, electrical wiring, permits, and specially certified or licensed contractors, PoE will help organizations significantly reduce costs and exposure to some of the components listed on the China Tariffs Schedule. 120 V/60 Hz electrical outlets would not be needed to power and/or charge powered devices (PDs) like IP video cameras, Voice over IP telephony (VoIP), physical access control readers and wireless transmission access points and transceivers.
LiDAR, (Light Detection and Ranging), is a RADAR alternative that uses light in the form of a pulsed laser to measure variable distances from and generate precise, three-dimensional information about objects. A LiDAR instrument consists of a laser, a scanner, and a specialized GPS receiver.
RADAR systems works in much the same way as the LiDAR, with the only difference being that they use radio waves instead of laser. RADAR has performance advantages over LiDAR in snow, fog, rain, and dusty weather conditions; however, LiDAR systems deliver a superior level of detail, so much so that they are becoming the most popular aerial mapping tool, when mounted in Unmanned Aerial Systems.
The visual output from LiDAR devices is a continuously updating, 3-dimensional rendering of objects. A LiDAR display is mostly a single color, with additional colors corresponding to object height. When examined closely, an object rendered by LiDAR is very detailed and composed of many horizontal lines, preserving object characteristics and privacy of biometric features like facial attributes.
Where do LiDAR, security and smart cities intersect? Cities like Las Vegas and Dubai are already using LiDAR with object recognition to monitor crowd behavior, vehicular accidents and control intersection signals when complex situations arise, like a pedestrian stepping into a crosswalk when a traffic signal has changed. The automated traffic control systems will automatically stop traffic in both directions, slow down incoming traffic from further intersections to provide more stable traffic flow. In these use cases, advanced sensors like LiDAR are used to augment or instead of IP cameras to detect vehicle presence and recognize objects in intersections.
LiDAR systems can also apply object recognition capabilities to reduce costly false alarms in facility perimeter protection use cases. A single human being or many can be detected and counted when in a facility’s perimeter “buffer zone” allowing security to respond. LiDAR not only detects pedestrians but it can also tell which direction they’re facing, and accurately predict where the pedestrian will walk. The high-level of accuracy also allows it to see details such as a cyclist waving, even at a distance of two football fields away.
Radar detection systems often show “blobs” instead of individual people, reducing detection efficiency.
Although more expensive than RADAR, manufacturers like Waymo have cut the price of LiDAR sensors by almost 90 percent in the recent years, with additional cost reductions on the way, challenging RADAR’s historically lower cost.
SIDEBAR – Market Impact: Gaming
What do Las Vegas and China have in common? Macao is a Special Administrative Region of the People's Republic of China – an autonomous region bordered by mainland China and known for its casinos and luxury hotels. Its gaming revenue has been the world's largest since 2006 and GDP per capita purchasing power is higher than that of any country in the world.
Several large Las Vegas casino owners generate more than half their revenue from Macau and also purchase some of the largest security and surveillance systems in the United States. Should the China tariffs be fully approved, it is conceivable that U.S.-based companies doing business in Macau may be affected, reducing their ability to potentially fund surveillance and security projects back home in Las Vegas and other gaming-friendly markets.
