Copyright Justin Sullivan, Getty Images

Cisco CEO Warns Higher Tariffs Will Force Companies to Cut R&D

Jan. 17, 2019
U.S. companies will end up absorbing the costs of higher tariffs, Chuck Robbins said.

Cisco Systems Inc. (IW 500/25) Chief Executive Officer Chuck Robbins cautioned U.S. officials against increasing tariffs on Chinese goods, saying it would come at the expense of American innovation.

U.S. companies will end up absorbing the costs of higher tariffs, spending less on the research and development that can lead to technological breakthroughs, Robbins said during a meeting with government officials in D.C. earlier this month. He told Bloomberg News that he was representing the view of several big U.S. technology companies in addition to his own: Hewlett Packard Enterprise Co., Dell Technologies Inc. and Juniper Networks Inc.

"If we go to the next wave in tariffs, tech companies in the U.S. will have to absorb that and cut back in R&D when what they want us to do is lead in innovation,” Robbins said in an interview at Bloomberg’s New York office Wednesday.

Cisco, like many U.S. hardware companies, uses contract manufacturers in Asia -- mainly China - to make its products. That makes it susceptible to U.S. tariffs when bringing those goods into its home market, increasing costs.

Robbins said Cisco has been able to absorb tariffs at current levels by making its supply chain as efficient as possible and passing some costs onto customers. But unless trade talks with China produce a deal by March 1, the White House is set to increase tariffs to 25% from 10% on $200 billion of Chinese goods. That would potentially put funds for research and development in jeopardy, Robbins said.

Cisco allocated more than $4 billion in 2017 to R&D in the U.S. for networking products, according to a joint filing by Cisco, Hewlett Packard Enterprise, Dell and Juniper last September. The companies asked U.S. Trade Representative Robert Lighthizer to spare their products from additional tariffs. Juniper put almost 20% of its global revenue toward research and development, while Hewlett Packard Enterprise invested $1.5 billion, the firms wrote.

In addition to having less to invest back into their businesses under higher tariffs, companies are also less likely to collaborate with others on research, according to Bloomberg Economics Chief Economist Tom Orlik. Even if firms do have money available to spend, they may hold off on research and development due to the heightened uncertainty, he added.

"The flip side of that, of course, and the argument which the U.S. government makes is that it’s China’s intellectual property theft which is the real disincentive to R&D investment," Orlik said.

By Krista Gmelich

Popular Sponsored Recommendations

3D Printing a More Efficient Factory Floor

Nov. 16, 2023
Today’s additive manufacturing platforms make it simple to print a wide range of high-performing industrial parts as soon as possible and right where you need them — unlocking...

The Guide to Balancing Citizen Development and Governance in Manufacturing Operations

Sept. 19, 2023
Platforms with no-code capabilities provide a competitive advantage for manufacturers responding to rapidly changing disruptions and demands. This guide helps manufacturers maintain...

Legacy Phone Lines Are Draining Your Profits

Oct. 30, 2023
Copper wire phone line expenses that support emergency devices could be costing your company millions of dollars in wasteful overhead expenses. Rates have been skyrocketing while...

Goodridge Boosts Productivity & Saves Costs by Moving to the Cloud!

Dec. 4, 2023
With Infor's cloud solutions, Goodridge has been able to greatly increase overall productivity, cost savings, data visibility, and automation. This case study discusses the many...

Voice your opinion!

To join the conversation, and become an exclusive member of IndustryWeek, create an account today!