Tyler Suiters                      

Hey, everybody with the Consumer Technology Association. I'm Tyler Suiters. We are the owners and the producers of CES the world's largest, the world's most influential tech event. We are here to help you get CES Ready. The big show is January 7-10, 2020 in Las Vegas. And today a topic that you won't necessarily see on display at CES 2020 but it will be across the show floor. Whether that's the products you see, the companies involved, even those you tech experts that you see on stage talking about their business ends and what lies ahead. We're talking about the fact that we are now very much in a trade war. The US and China are at war over trade and part of the result is US imposed tariffs on tech products and components coming from China. Now keep in mind, tariffs an old school term, right? If you're digging back into your US and world history, tariffs are nothing more than taxes paid by US companies and eventually US consumers.

Tyler Suiters                      

So regarding this whole back and forth on what's tariff and what isn't, and at what rate, which continues to go up and down. It's a one step forward, two steps back policy approach and tech businesses are caught up in this. They're struggling to continue under the burden of tariffs and this extra money they have to pay in the form of a tax and also the uncertainty that's generated across supply chains as they try to get their products to consumers as effectively and efficiently and inexpensively as possible. So some data to throw your way, first of all, just through August, okay, just take this past August, the US consumer tech sector paid an additional $1.8 billion in tariffs. That's just August. And this comes from research via CTA and also the trade partnership. Now reject that out on a much broader scale since July of 2018 so a little over a year ago, tariffs have cost the US consumer technology sector more than $14 billion, and that includes more than $1.3 billion on a key category where we're trying to win a global race.

Tyler Suiters                      

And that category is 5G related products. This is a profound challenge for the entire tech sector, so today, two perspectives for you, first of all, a founder and a CEO. This is a company called Austere and we'll talk a little later about amazing products that they're putting out, but this is a combination of the fashion world and the tech world coming together. It's a tech accessory company and one that is facing exceptionally difficult existential challenges of survival all because of the tariffs that are in place right now. And then we're also talking to a colleague of mine here at CTA, a trade expert who has spent a decade at international trade both at the department of commerce and also the office of the United States trade representative, the USTR, which is a pretty hot acronym here in Washington and trade circles right now. All of that is coming up on this edition of CES Tech Talk.

Tyler Suiters                      

Joining us now from the West coast is Deena Ghazarian, a longtime tech sector veteran business professional and as of not too long ago, the founder and CEO of Austere. Deena, it's great to have you with us.

Deena Ghazarian             

Hi Tyler. Thanks for having me.

Tyler Suiters                      

So I know you've been in this sector for quite some time and have had varied experience. Let's talk about the latest adventure there at Austere, how the start is going and what the company is carving out in terms of its niche in the space.

Deena Ghazarian             

Absolutely. So Austere is a home theater accessory company that has done, I would say, something unique in the market based on the request of the customer and our retail partners. We are taking technology and colliding it with style where we're bringing both of those two options to the table. So the customer is, I believe attachments are still very important in regards to video and audio experience. Are the customers asking for it. The retail partner is asking for it. But with that, most of what's out in the market is, I would say not very sexy as I guess the best word I know how to explain to be able to encapsulate the entire message. But in a nutshell, what we have done is the customer wants to have product that's sexy and savvy as they are. They are also looking for something that's very minimalistic and styles, stripping back all of the excess and kind of keeping their homes very clean very neat.

Deena Ghazarian             

I would say the hardware manufacturers have done an excellent job in regards to video and the way that panels look in the home. I would say they've done an excellent job with appliances and how gorgeous that looks in the home. Yet the accessories that attach to it, have really not gone through that same evolution. So Austere is brought to the table. This colliding of style and technology and we are leveraging tech and innovating the tech and using style to help get us there with regards to design and the tactile beautiful materials that we use in our product. And then more importantly, we're working with our retail partners to educate them on why better technology is important for your experience in the home. Why you need to actually leverage a good HDMI cable as that technology proceeds to progress in regards from going from 4K to AK and those beautiful experiences that we're starting to get even more so out of our video panels and why the cables and the strand, the power are so important.

Tyler Suiters                      

If you can use HDMI cable and sexy in the same elevator pitch, I think you're one step ahead on the field in general. One of the interesting aspects of Austere, Deena is the fact that as you said, it's this melding of tech sensibility and performance but also with fashion and in the company's terms, the terms you use, international fashion. So what is the international aspect that's involved here in the design and delivery of your products?

Deena Ghazarian             

100%. So for in regards to my background though, I've been in technology within consumer technology for almost 20 years, not quite, but pretty close. Before that I was actually in fashion and I started in fashion when minimalism was key and Tom Ford was really driving the focus at Gucci. And that whole minimalistic experience where you could have something that's elegant that lasts you forever. And so that inspiration, because that is so global and international in the way that it's presented was kind of how I took to the brand and leverage the design piece in that. That was kind of number one. Number two, when you have that type of focus, no matter where the brand goes, you actually have the ability to relate to a consumer no matter what is the focus in the region. Because minimalism is kind of like that foundation that stays as what people will actually live with for a very long time.

Deena Ghazarian             

So that focus was very key for us in regards to design. That's kind of number one. Number two, because of my past history, I have been and had a lot of experience globally and making sure that we understand how to regionalize a brand and a message for each customer in each region. So it is a very complicated process. You just cannot take one thing and apply it to another region. So when you can find a way to have something that's as simple as possible to take across globally, you will do everything in your power to make sure you're efficient that way.

Tyler Suiters                      

So in the last roughly year and a half or so, Deena, that international sourcing has become much more complex and much more expensive for a number of US-based tech companies because of the tariffs that are now in place. How have you ridden out the storm and what is the damage that that Austere is dealing with right now?

Deena Ghazarian             

Correct. So as much as I'm focused on the consumer globally, we also have a business. To your point, that is a very global type of business. If you're really going to be an innovative and savvy, you're going to leverage the best across the world to build your brand. So right now when we started to look at the brand and how we were going to build it because of the experience and or really some of the associations in the world that are saying, hey, for the best technology and innovation you need to leverage these partners. The majority of those partners today are based in China. China has built an infrastructure to build up technology to support the world. And so a lot of us in the United States as we're building these companies want to leverage the best for the consumer. Now here's the dilemma. With all of the tariffs that are going on and with all of those battles and wars across those different products and or pieces that build the brands, it becomes very tough physically as a startup to weather this storm.

Deena Ghazarian             

So trust me, I am a big believer. I am one of 100% in support of if somebody, I don't care where they live globally infringes on IP and patents, we as a country need to take the ability to use legal direction to say, hey listen, we have to keep our manufacturers. And the people who create the IP for those manufacturers protected. So if there is homework done to show where that's there, then absolutely I support that. That unfortunately is not necessarily what has gone on in this entire experience for tariffs.

Deena Ghazarian             

I would say in the beginning that was absolutely the intent and where it made sense. And by the way, we made these decisions for my brand in the first two lists that came out that had that homework done where there was an infringement, we went elsewhere. So not all of my product is built in China today. I do a product that's built in other countries that didn't infringe on those IP patents that the actual government went through and found reasons for. What has absolutely crippled my business, unfortunately is list three and list four that really, and again, this is my opinion, but had no rhyme or reason of why goods got thrown onto the list, it was more for the battle than it was for the actual reason that this entire process started, which was the protection of IT.

Tyler Suiters                      

And so with four lists out there, Deena, as you go through the iterations one and two there is some pain points for US businesses but they with ... with each, right. So with each successive list though, the scope, the amount, the sheer volume we're talking about of import products goes up almost exponentially. And so it's catching so many different sectors, right? Not just technology and so many different sizes of companies. Right?

Deena Ghazarian             

My husband actually works for Macy's and very much involved on the supply chain side. Everything they've done has gotten hit too. So it doesn't matter if you're a big company or a small company, you are absolutely being impacted by this deep list. What really crippled me was I went from having one product on the first list that I made absolute decisions around to support focusing on countries that weren't infringing on IP to list three threw everything of mine into the list. I don't have a single product that I'm not making that isn't impacted. And it's so significant that tariff that's now almost at 30% has literally crippled me to the point where 10% of my overall margin that I'm trying to use to drive to give the customer an unbelievable experience and support my retail partners has come off my bottom line. That is a lot to deal with.

Tyler Suiters                      

And the other aspect Deena, besides the most obvious costs and profit margin and ability to keep employees in place or to even grow and hire new employees and create new jobs is this uncertainty, right? Both the market uncertainty for any one of us who was dealing with a 401k, a pension, a college fund for kids or grandkids, right? Where you're watching the stock markets take these wild fluctuations based on tweets and innuendos and rumors. But for you as a business, the uncertainty about where the rules will be, right? What the bar really is going to be moving forward and you just can't make those long-term plans. Is that a fair summation?

Deena Ghazarian             

It is an absolute fair summation. I am in this position where in order for us to survive, not just thrive, survive, I have to start making decisions where it is going to cost me big money to the company. That again, I could put back into the business for the experience that the consumer, my retail partners, to try to shift the business elsewhere. I don't have a choice anymore. I cannot wait to see if the government is going to support my business in trying to get this fixed. I have to move, which by the way is going to impact my innovation. It's going to impact how fast I can move, is going to 100% impact who I can hire.

Deena Ghazarian             

I'm the big believer and I know CTA as well, small businesses back our economy. We're the ones who drive it forward because of the team that we employ. My tiny little company employs 16 people. That's 16 people that I help with, a 401k that I help with benefits that I literally have to look at. We are crunching my P&L weekly to see how we keep everything moving forward in the right direction. And more importantly, don't stall not only the growth of the business, but the opportunity to keep people employed. Like I've never had to look at a business that way.

Tyler Suiters                      

Yeah. So that's a really interesting point Deena, in—

Deena Ghazarian             

And I feel very guilty.

Tyler Suiters                      

And can imagine why, right? But you bring up an interesting point, which is the choices you have to make, not just the business decisions, but it's a reality of being a founder, right? Being in a startup or small business that you're time limited and you have to focus on certain sets for only certain amounts of time and for a huge time suck, like dealing with a new list of tariff codes that comes out and you need to discover which of your products may or may not be on there. You're also dealing with the potential impacts, as you said, the weekly P&L adjustments. This is time that would otherwise go where toward business development, toward company growth as we said, do jobs toward R&D, right? That the innovation process, you referenced.

Deena Ghazarian             

All the innovation. That's right. You know, we all tease innovate or die, right? You only have a small window to be able to innovate and keep yourself cutting edge and at the head of what you're trying to do for your business. And if you're not focused on innovation and you're focused on constantly trying to Band-Aid or fix, you don't get the ability to grow. It's very simple.

Tyler Suiters                      

What is the pivot point for Austere for you Deena? Is it, if and when the December 15th list goes into place, I mean that's the next imminent deadline we know of, at least at this stage. And it's probably largely dependent on what does or doesn't happen during a bilateral negotiations with the US and China. Is it sooner than that or is it next year? What is your real decision point where you're going to have to make some tough, tough choices if things don't change?

Deena Ghazarian             

So, I would say that has happened actually for me in the last two weeks. I was just in China two weeks ago. We sat down with all of our factory partners who by the way have been amazing to us. They have done their best to be accommodating for a startup. They have given me actually I would say opportunities that I don't believe most startup get because they are trying to be supportive of our business. So we literally talked about how do we figure out a way to open up where they stay our partner, but we open up factories elsewhere. How do we make decisions to actually move the goods in a different way? Do we look at other opportunities that way? So we spent that time building that out together. We are talking through what that means. I have to make my decision now, Tyler.

Deena Ghazarian             

I can't wait. I can't because if we take another hit and it's that fluctuation, it could really stop us not only from growing but maybe even making the decision to move forward. And I'm not about to take all of this time and money that I have spent to build what I think is a business that is supportive of United States retailers to wait and see. I just can't. So we've got to make decisions now. It's going to be expensive for us. We are going to have to literally grind it through to make it happen. But I can't wait and can't depend on what that looks like anymore, unfortunately. It's been, to your point, it's fluctuated so much that if I do wait, I think I'm putting my head in the sand.

Tyler Suiters                      

So Deena, this is a pretty high hypothetical, if I can phrase it that way. But if you had the chance to get the President's attention for one minute and he were able to give you one minute of full attention, what do you say? What's the case you make? Because this seems to start an end with the President of the United States.

Deena Ghazarian             

Yeah, the one thing that I would try to work with President Trump on is the fact that I'm a business owner. His entire background is being a business owner and just to take the time to think, hey listen, I know I employ only 16 people but could have the ability to employ a lot more people in the future. And it's one of those things where look at someone like me who is really, I think an outstanding American citizen trying to do the best for the economy and let companies like me live.

Deena Ghazarian             

I think the problem right now is startups are really taking the biggest brunt of this because I think the government is very focused on big organizations and the fact that they can change and move so fast versus someone like me who's going to get swept under the rug and never really be seen or noticed. So I would take the time to basically appeal to him to say, hey, take care of your small business owners because they're the ones who are helping build this company and doing it the right way. So give them a break, give them the opportunity to grow in thrive.

Tyler Suiters                      

Deena Ghazarian is not only small business America and a tech sector veteran, but the founder and CEO of Austere and very much caught smack dab in the cross hairs of what is now a trade war between the US and China. Deena, greatly appreciate your time and hopefully we'll have some good news to share when we see you at CES 2020.

Deena Ghazarian             

Yes, thank you Tyler, and looking forward to it. Can't wait.

Tyler Suiters                      

Joining me now is a friend and colleague. I'm proud to say Sage Chandler is the Vice President of International Trade here at the Consumer Technology Association, also a veteran of the US Trade Representative's office in years past. Sage, thanks for coming by the studio today.

Sage Chandler                  

Thanks for having me.

Tyler Suiters                      

Let's back into this a bit with your experience. You spent a lot of time in the USTR as it's known here in Washington and here in DC, of course, everything has an acronym, right? But the USTR has been in the news a lot more over the last two years in that it is a major policy arm for this administration. Can you recall a time when it's been this active on the policy front?

Sage Chandler                  

Well, USTR's job has always been to be very active on the policy front. It's the trade setting body negotiating arm of the US government and part of the White House along with the Department of Commerce. And the Treasury Department sort of oversees the role of trade and the US economy and our policies towards other countries. But typically USTR's job in the past has been to open markets to foster new relationships for US companies to gain access to foreign markets. And so this is somewhat different in that we're seeing a real insular in more looking policies now that are keeping foreign competition out of our market. But the unintended consequence has been that a lot of US companies are hurting because of it, because the markets are so globally integrated that companies that use the international supply chains are finding themselves with a burden of tariffs that they've not ever really had to encounter to this level before.

Tyler Suiters                      

Yeah. So say that in the United States we have a single digit level percentage of the world population, but we're selling to 90 something percent of the market, right? That's just a basic fact of life for any company that wants to compete. That's based in the US today, right?

Sage Chandler                  

Right. Well, yeah, that's one of USTR's favorite talking points is that 95% of the world's customers live outside of the United States. And so when you're looking as a business to markets to sell to, you've got a huge world out there. But likewise, the rest of the world is also a place that we source from that we do what we do best here, but other countries do things better or differently than we do. And that helps our companies remain competitive, is that they can compete on a global marketplace using those global supply chains.

Tyler Suiters                      

How did the global marketplace, the global supply chain come to being for the tech world, it seems we're among those sectors that sources internationally and you know, look, this is speculative, right? More so than any other, and I don't want to be hyperbolic about it, but you get one device that can start here in the United States with an idea or a framework and it can literally ship around the world to get various parts and additives put in and elements before coming back here to the US, right? How do we land this way?

Sage Chandler                  

Yeah, that's an interesting question. I think that we're hearing a lot more of this discussion today and recently, especially with the focus on China. I'm commonly asked why not just move manufacturing back to the United States and in a lot of cases that ship sailed long ago. In other cases, it's because the supply chains or the process or the components themselves or the materials that they use for specific components, they're not available in the US there's natural resources that we don't have.

Sage Chandler                  

There are things that we do have that we want to spend our money on more so. So like we keep hearing from especially a lot of our small companies about wanting to maintain sort of a competitive edge in intellectual property research, design engineering, and our companies are paying that higher dollars to keep that employment and those jobs in the US but to remain competitive vis-a-vis their foreign competitors, they need to find other pieces of that product outside the United States. So some component level things, some kind of minerals, some kind of wiring, smaller pieces that go into the larger product. But that the great value of many of our company's products is in the R&D and the intellectual property that's from right here at home.

Tyler Suiters                      

So it's a bit of the free market at work, but within the last few years we get to this stage of tariffs. And what does that mean from a macro level, Sage? As you look at it, two companies to the global supply chain, to consumers around the world. When you start putting individual taxes on individual parts that make up a slew of the products we use every single day.

Sage Chandler                  

Well, our favorite talking point these days is tariffs or taxes. The final costs trickles back down to the US consumer. And when you look at it in a large sort of globally economic perspective, you see companies aren't just having one item with a tariff put on it at 25% or at 15% they are integrating pieces from all over. And so you may have, for instance, we're talking a lot about 5G in the 5G race. A data center that's located in the United States might have a lot of research design, engineering IP that's US sourced, but the wires, the switches, the routers and number of these the giant computer screens and all these tech products, those products coming from China are being taxed at a different rate. Some at 25 some at 15% and with a threat to continue going up. So any given data center may have inputs coming in at 25% higher, but times 50 parts, those costs go up much more than just 25% it can be 25% five, 10 times over.

Sage Chandler                  

So that cost gets passed down to say the internet service provider and that internet service provider also had added costs on some of their equipment and they can't afford to suck all of that added costs up. So who do they pass it down to? Well, it eventually comes back down to the consumer and we're not seeing the prices just yet going up. Although I am actually noticed some prices increasing in the stores, but these cycles tend to be six, eight, 10 months out because companies are trying to forecast for change and we're seeing some hoarding behavior where companies are shipping things prior to tariffs going into effect and they're sitting on warehouses full of product. All of this pricing behavior and purchasing behavior that's sort of outside the market norm is taking away from company's ability to innovate, to do what they do best, to plan to really own the markets as they used to. And it's largely unsettling and very uncertain for these companies.

Tyler Suiters                      

So you bring up a really good point there, Sage. There's this delineation of cost, right? Between the real, the objective cost of what happens when tariffs are put into place. Taxes are put into place on components in a product that I produce and it costs me more to produce that product and so eventually that product costs more to consumers when it's on the market. But there's also this subjective cost, right? That the money, the bandwidth, the time, the effort, the energy you spend in dealing with tax codes or looking for which of your products might be on the new tariff list. That's all of these inherent resources that you can't spend driving innovation or building R&D, right?

Sage Chandler                  

Yeah, and we're seeing from a lot of our CTA, we have about 22 plus hundred member companies. About 80% of those are small businesses and these small businesses who were used to operating in a world where we tried to keep costs very low and have no tariffs, don't even know how to deal with us. I've had multiple calls, probably hundreds of calls from companies that all of a sudden are facing a bill, a huge cost that they hadn't planned on to get their products out of customs and they didn't even know this was coming because they didn't even realize what that a tariff hike would impact them. And then to tell them, well you need to find out at what rate you're being taxed. You need to find your harmonized tariff code. They don't even know how to look for that.

Sage Chandler                  

These companies, especially the smaller companies don't have customs people on staff, they don't have lawyers on staff, policy experts on staff and they don't know that the world that they were shipping their product in, a couple months ago is so very different when September 1st goes into effect or December 15th which is the next round of tariffs that are supposed to happen. And if they are not planning for it, they may not have the money in the bank to get their products out of customs. And we've heard about that. We've heard about companies that have had to go on hiring freeze. We've heard about companies that are laying people off now, companies that have not been able to have their profit sharing anymore, cut bonuses and most of all that have had to alter their expansion plans within the United States because they can't afford the added costs that are coming down on them now.

Tyler Suiters                      

So that's a great outline of what companies are dealing with, Sage. What about the government side? Because you have a pretty unique perspective in that you've been in negotiations like this and granted this administration's negotiations team is probably a bit of an outlier in terms of what it's dealing with right now, but what happens in these talks in a bilateral between the United States and China when so much is at stake?

Sage Chandler                  

It's hard to give you what a typical scenario with China is, especially now. We have very little information about what's happening behind closed doors with the administration officials and the Chinese officials. Typically negotiations, whether they be multilateral with several nations or bilateral with just one country or a plurilateral with a handful of countries. The objective is to solve some specific problems that have been outlined in advance and then come up with ways to address them. And usually if it's going to be a binding agreement, you need to have enforcement mechanisms, meaning checks and balances. There has to be laws on the books and the host in the each country that support the things that you're trying to change. And there have to be a system of checks and balances to make sure each party is living up to their commitments.

Sage Chandler                  

The specified problem with China according to this administration, was the original finding that China was violating or practicing unfair intellectual property practices. And in part of that was some forced technology transfer, some focus on cybersecurity practices, counterfeit. The administration launched an investigation into those unfair trade practices and found that China was to the tune of about 50 billion harming US industry and that's intellectual property practices and that was the first 50 billion that we levied against them and tariffs. After that point, however, China retaliated and this administration retaliated on China's retaliation and that was the next $250 billion worth of tariffs on products and it has ratcheted it up ever since. So again, back to your question about how these negotiations usually work. The goal is usually to open markets because sort of there's a rising tide lifts all boats belief within the sort of broad trade community and that when countries and companies can do what they do best, sort of the natural flow of things will be that companies are able to do it without government interference and interference can come in the form of tariffs or non-tariff barriers.

Sage Chandler                  

The solution to this US China issue is going to be difficult because at least as far as we can tell, the Trump administration hasn't clearly laid out specific objectives and specific issues that they want to see China address. Some have been laid out, intellectual property, forced tech transfer, but it seems that every day there's some new step to go up and that might be visas, that might be currency manipulation. That might investments, US investments in China. There's so many practice areas that are being discussed. It's hard to see what the roadmap will look like and what the exit ramps will look like.

Tyler Suiters                      

Is it safe to say then Sage, that a proper outcome for the tech sector would be roughly right back where we started, but with enforceable protections against IP theft and a removal of force technology transfer that China is and has imposed upon US and foreign companies?

Sage Chandler                  

For tech, yeah, that would be a good outcome if we got right back to where we were with no tariffs but, there was some kind of enforcement that won't happen because we can never go back to where we were. We've seen such a shift of companies moving out of China. We're seeing this massive migration within the tech sector, moving pieces or entire operations to Vietnam, Taiwan, the Philippines, all across Asia. China is definitely suffering because of it, but our companies are suffering too. It's bred some very anti-competitive behavior. We're seeing companies leave factories in China, but when they leave a factory in China, they've had an entire floor, perhaps of employees that they trained to make their product. Now they've just abandoned perhaps a warehouse or a manufacturing facility where they trained the people there to be their competitor. So, what we've created in maybe trying to make things better, they're going to be a whole host of new issues that we may not even have envisioned yet.

Tyler Suiters                      

Sage Chandler knows where of she speaks. She is a veteran of the office of the United States Trade Representative. Currently the international trade experts at the consumer technology association. Sage, really appreciate the detailed deep dive and I know much work is left to be done. We really appreciate your time.

Sage Chandler                  

Thank you.

Tyler Suiters                      

All right. Shifting gears coming up next time on CES Tech Talk, a real success story from the emerging technology categories. We're talking about drones. Yes, a huge hit for consumers. Remember they had their breakout years, a holiday gift just a few years ago, but drones are also critical for professionals and businesses and emergency workers. Think about the uses for drones, whether that's searching for people missing in the wilderness or after natural disaster or simply every day letting human workers stay on the ground where it's safe. While drones are hundreds of feet in the air inspecting buildings or doing maintenance on bridges, we are talking with the administrator of the Federal Aviation Administration. He is a former fighter pilot. He certainly knows all about drones as well and he is discussing what is becoming a rapidly changing US airspace.

Speaker 4                           

Some other examples we've seen in the construction industry, cinema photography. My son has his own videography business. He's using drones quite extensively. Pipeline inspection, agriculture, public safety, energy, surveying, mapping, firefighting, a whole bunch of applications that are really exciting.

Tyler Suiters                      

Drones are the topic for the next CES Tech Talk. Now we want you to be CES Ready, so do yourself a favor. Subscribe to the CES Tech Talk podcast. That way you won't miss any episodes as we're getting ready for CES 2020. Those dates, once again, January 7-10 in Las Vegas. The information you need is at ces.tech. None of this is possible without our true stars of the podcast executive producer, Tina Anthony and our senior studio engineer, John Lindsey, y'all are the very best in the business. Thank you. I'm Tyler Suiters. Let's talk tech again soon.

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