I wrote much of this column, including the title, in early April before the Trump administration announced "reciprocal" tariffs on imported goods. A random example: Switzerland, home of CH Precision, darTZeel, Goldmund, Orpheus Lab, Piega, Stenheim, Thorens, and Wattson, among other hi-fi companies, where the tariff is 31%. Before this issue closed, the Trump administration announced a 90-day reprieve for everyone but China, then exempted computers and smartphones (and a few other categories) from the China tariffs. Importers and foreign manufacturers I talked to at AXPONA in April were happy for the reprieve but remained on edge. Uncertainty reigned.
What is Switzerland's tariff on US goods? Nichts! Rien! Walou! Which is why I put the word "reciprocal" in quotes.
Switzerland is the source of the Stenheim Two.Five loudspeaker, favorably reviewed by John Atkinson in this issue (see p.73), which costs $23,500/pair. How much would it cost with tariffs? Everyone I talked to at AXPONA was biding time, hoping the tariffs would just go away. Some, especially those from China, said that if the tariffs stay, business in the US will no longer be viable.
Of course, Switzerland was just one example. The new tariff on imports from the EU is 20%. That includes Finland, from whence comes the Amphion Krypton3X loudspeaker (currently $25,000/pair), the subject of a glowing review by Tom Fine in this issue (p.53). The same tariff rate applies to Poland, source of the Fezz Equinox DAC ($2995) that Herb Reichert so enjoyed this month (p.63), and Denmark, where the excellent Lyngdorf MXA-8400 amplifier ($8900) is manufactured. (See KR's review on p.85.) How much would these products cost with tariffs? How much would be absorbed by the manufacturer and distributor and how much would the customer be asked to pay?
High prices for hi-fi are nothing new. Prices have risen incessantly for at least a couple of decades, especially at the highest-priced end of the hi-fi market—and that's got nothing to do with tariffs. What we've seen isn't inflation exactly, or not mainly that. Companies have discovered that there's a market for ever more expensive stuff, so they started making it. There's a story about Swiss watches that may be apocryphal: A poorly edited ad for a very expensive watch added an extra zero to the price, and the watch sold out in days. I get the feeling that even companies themselves are surprised sometimes at how much people are willing to pay for this stuff.
Why is it happening? I'm no economist, but one answer seems obvious: There are more rich people than ever, and they're richer than ever. In late February, the Wall Street Journal published an article with the headline "The U.S. Economy Depends More Than Ever on Rich People." It seems to me that this applies to hi-fi as much as it does to other industries.
"The top 10% of earners—households making about $250,000 a year or more—are splurging on everything from vacations to designer handbags, buoyed by big gains in stocks, real estate and other assets," wrote Rachel Louise Ensign, the WSJ reporter. "Those consumers now account for 49.7% of all spending, a record in data going back to 1989, according to an analysis by Moody's Analytics. Three decades ago, they accounted for about 36%. ... Mark Zandi, chief economist at Moody's Analytics, estimated that spending by the top 10% alone accounted for almost one-third of gross domestic product." That's a lot of amplifiers and high-end DACs. A graphic from the article shows that since 1990, the fraction of total spending by the top 20% of all earners rose from 55% to 75%.
Another chart shows that starting in early 2020—the start of the pandemic—everyone's savings rose quickly. But for the lowest 90% of earners, savings peaked around August 2021 and then fell, almost down to pre-COVID levels. For "top earners," savings increased at the same high rate for another half-year, then leveled off. The top 10% kept their pandemic gains; the rest didn't.
You can see this very clearly in the hi-fi industry. Most companies did great during the pandemic, but for makers of lower and moderately priced equipment, things got pretty bad after, while many high-end manufacturers continued to do well. Recent financial reports from public companies—Masimo (footnote 1), Voxx—suggest that it's a real struggle to make money manufacturing hi-fi equipment at low-to-mid prices.
"It's an extreme bifurcation" between companies selling to wealthier customers and companies that cater to the less affluent, said JPMorgan Chase analyst Matthew Boss, quoted in the article. Big Lots filed for bankruptcy last fall, and Kohl's and Family Dollar are closing stores across the country.
Meanwhile, the top 5% of earners increased spending on "luxury goods abroad" by about 10% in a single year. (The article I saw this in didn't say which year.) Those people were, to quote Bank of America senior economist David Tinsley, "going to Paris and loading up their suitcases with luxury bags and shoes and clothes." Presumably they had their big speakers and amplifiers shipped rather than putting them in their suitcases, but the same principle applies.
If you were running a hi-fi company, what would you do? You'd probably produce more stuff that rich folks are likely to buy, since that's where the money is and those are the folks who are buying. So there's pressure on hi-fi companies not to raise their prices but to build pricier stuff (footnote 2).
Looking at the big picture, the main impact of tariffs is not higher prices but the destruction of giant swaths of wealth. It's not so much the tariffs (which for the moment have mostly gone away) but the uncertainty (which very much hasn't). At one point in the middle of the day this issue went to press, the S&P 500 had rallied but was still off by about 12%. That's something like $6 trillion, considering only the market cap of the S&P 500 and not the market as a whole. (The S&P 500 is often used as a barometer for the whole stock market.) A lot of those stocks are owned by people of significant means—so will this cause hi-fi prices to go back down? It seems more likely to me to stifle the part of the hi-fi industry that's currently healthiest while doing nothing good.
Footnote 1: In early May, Masimo entered into an agreement to sell its Sound United audio brands to Harman. Footnote 2: John Atkinson examined other reasons for the increasing prices of high-end audio components in 2018, 2017, and 2011.
Advertisement
Advertisement
Footnote 1: In early May, Masimo entered into an agreement to sell its Sound United audio brands to Harman. Footnote 2: John Atkinson examined other reasons for the increasing prices of high-end audio components in 2018, 2017, and 2011.
