US President, Donald Trump, had been complaining about Chinese trading practices, even before he took office in 2016, claiming an “unfair deal” for the US. In 2017, the Trump administration imposed tariffs on billions of dollars worth of Chinese products, triggering a tit-for-tat, or tariff-for-tariff, trade war. Such disputes between major economies have a global impact across many sectors, and according to the latest report from Memoori the lighting industry is already feeling the strain.

For lighting, the focus is on Light Emitting Diodes (LEDs), a critical component of modern lighting solutions since the 1990s. An inexpensive and low-power source of illumination, LEDs have already overtaken all other luminaires as the first choice for new installations globally. An extension of the US tariffs on Chinese goods, in September 2018, included more than 30 categories of LED lighting-related products, which were subject to 10% tariff increases. President Trump threatened to raise that to 25% the beginning of this year but a truce was called.

Another round of negotiations, in May 2019, only seems to have escalated the trade war. Following the talks, US officials threatened tariff hikes on $300 billion worth of Chinese goods. In response, Beijing announced tariff hikes on approximately $60 billion of American products in this spiraling dispute. “China will fight to the finish. We have the determination and capacity to safeguard our interests. China’s countermeasures have shown our determination to safeguard the multilateral trade system,” said a Chinese foreign ministry spokesman, Geng Shuang.

In China, lighting component manufacturers are facing an extensive oversupply crisis, which is being amplified by the trade dispute. The vast production capacity increases of Chinese LED manufacturers have outpaced the slowing demand growth, creating an oversupply situation in the market. Those Chinese manufacturers that initially intended to raise their revenue and profits through production capacity expansion have been hurt by the reduced average selling price (ASP) of LEDs.

The first half of 2018 saw drops of 20% to 30% for certain LED chips. While in the US, lighting firms are feeling the strain of price increases and uncertainty.

The International Monetary Fund says an escalation of the tit-for-tat tariffs could shave 0.5% off global growth by 2020. Morgan Stanley estimates that a full-blown escalation of the trade dispute could knock 0.81 percentage points off global gross domestic product. While the head of the World Trade Organisation (WTO) has said global free trade is facing its "worst crisis" since 1947.

"I would say this is the worst crisis not for the WTO but for the whole multilateral trading system since the GATT [General Agreement on Tariffs and Trade, that preceded the WTO] in 1947,” Roberto Azevedo, told the BBC before the last G20 summit. "This is the moment when some very basic principles of the organization, principles of cooperation, principles of non-discrimination are being challenged and put into question. And I think that is very serious."

“The risk of further escalation is far from over,” said Timme Spakman market expert at investment bank ING. “Both sides have the incentive to act half-crazy and unpredictable before tariffs come into effect in order to cut a better deal,” reads a Macquarie Bank report. While Mark Zandi of Moody’s Analytics wrote, “the odds of a settlement remain high, but suddenly a number of other scenarios seem possible, even one in which the US, China, and the global economy, suffer a recession.”

Global economic disruption may be bad news for most but there are potential winners from this trade war. Continued or increased tariffs on Chinese goods allows other strong manufacturing nations to seize a share of the lucrative US market. In the lighting industry, South Korea and Taiwan firms are already making moves and their national governments are seeking to entice those firms reconsidering production facilities in China. In this scenario, US consumers would suffer in the short-term and the Chinese economy would feel longer-term consequences.

“Continued uncertainty and increased tariffs will affect HCL and the lighting industry as a whole. Some US lighting firms have already reported price increases on their products in the US market due to the imposed tariffs on Chinese goods and the consequent cost rise. High tariffs could result in many companies relocating production to new facilities outside China to minimize the impacts of trade issues,” states our in-depth report on the Human-Centric Lighting market, which is feeling the effects of the global, multi-sector disruption.

Human-Centric Lighting (HCL) may be a small part of the lighting industry, which in turn is a small part of the US-China Trade War, but the impact on this emerging technology is significant. Europe’s HCL market dominance is benefiting, at least slightly, from the relatively greater disruption in the US and Chinese oversupply but firms from the continent will be hoping for a swift resolution and improved global economic stability.

While more negotiations are planned for this year, it now seems likely that the US-China trade war flow into the even more unpredicticable waters of the 2020 US presidential elections.