On April 5, 2025, the President of the United States announced that the United States will impose a minimum 10% baseline tariff on all goods imported from around the world, with many countries subject to higher rates. This announcement sent shockwaves through many economic sectors, causing a large amount of concern over supply chain costs, consumer pricing, and other global trade implications.

The video game industry is no exception. While reports are that some electronics may be exempt from tariffs, at least temporarily, concern over the quickly changing trade policy and changes to associated supply chains from nonexempt goods have many players around the video game industry concerned, even leading to Nintendo pausing US preorders on the forthcoming Switch 2 console. Understanding the full scope of the implications of these tariffs may inform strategic decisions companies can make to mitigate their negative impact.

What are Tariffs?

Tariffs are taxes or duties on imported goods, which are assessed at the point of entry into the jurisdiction assessing the tariffs. In other words, tariffs are exclusively taxes on physical goods. Tariffs are also assessed on the “dutiable value” of goods, which is generally the price paid for the goods by the receiving party with adjustments for associated royalties, commissions, packing costs, and other direct economic factors.

How do they affect video games?

The largest tariffs imposed by the Trump Administration target China, with tariffs as high as 145% on some goods and a baseline tariff rate of 125%. China exports approximately 58% of video game hardware and related equipment globally. Accordingly, the video game industry can broadly expect tariffs to impact prices on consoles, equipment, and other hardware necessary to create and play video games.

These tariffs aren’t limited to video game consoles and equipment, either. Physical video games imported in the United States are also subject to tariffs. Further, the “dutiable value” of those games is not limited to the disk itself, but rather to the value of the intellectual property captured on that disk and the related royalty obligations (if any), raising that dutiable value to closer to the retail price.

That all said, purely digital goods escape direct impact from tariffs regimes by virtue of avoiding any true “port of entry” entirely. That is largely viewed as deliberate: The United States is a founding member of the World Trade Organization (“WTO”), and the WTO imposes a moratorium on its members placing any tariffs on “electronic transmissions,” which includes digital video games. While this membership could theoretically be rescinded, in the interim, it can generally be assumed that digital video games are not yet subject to tariffs. That moratorium has also existed for the better part of 26 years, so while some experts have speculated on what a “digital tariff” could look here, there is no clear existing mechanism for such a tariff to be imposed.

What are the follow-on effects?

Because tariffs are assessed on imported goods, they create an economic incentive for companies selling physical goods to make two primary strategic adjustments:

1. Where the company serves consumers in the United States, “import” more of the company’s core operations, including manufacturing, into the United States to import raw materials with lower dutiable values, rather than importing more expensive finished goods; and
2. Where the company serves consumers outside of the United States, realign the company’s supply chain to avoid any ports of entry into the United States.

Accordingly, video game companies embedded in the United States will likely see costs rise, but may have opportunities to take on economic opportunities to support licensors from outside of the United States.

Tariffs also historically coincide with an increase in “grey market” imports, meaning imports by unlicensed distributors carrying aftermarket or potentially counterfeit goods. In the intellectual property context, this introduces a greater need for enforcement mechanisms, such as registering intellectual property (e.g. trademarks) in the relevant jurisdiction. For distributors, this phenomenon introduces additional risk that may merit audit rights and procedures to ensure that their providers’ goods are properly licensed and have been properly declared.

Where will the tariffs go from here?

From outside of the United States, some trading partners have responded by decreasing or eliminating their tariffs on certain types of goods from the United States in an attempt to decrease the tariff rate applicable to them. Others, like China, have responded with increased tariffs on those goods. Trade wars are geopolitical affairs with a large number of moving pieces, so projecting how the various fronts of the conflict will develop is difficult, even before considering the ramifications of the United States expanding into Greenland or Panama.

Within the United States, rumors abound regarding how the Trump Administration’s official tariff policy will change from here. The Trump Administration’s official stance is that the amount of the tariffs bears a direct relation to the corresponding country’s receptiveness to United States, suggesting the tariff rates may fall or be eliminated entirely if the corresponding country eliminates barriers to entry in its market or the two countries can otherwise strike a deal. Similar to the electronics exception linked above, there are also tariff exceptions rumored to be effected for the automotive and other industries, lessening the impact on the average consumer.

In short, much is unknown and the remainder is changing quickly, so impacted parties should do their best to stay informed on the changes in the winds of a tumultuous trade climate.

Key Takeaways

Companies selling physical goods should analyze their existing supply chains to determine if strategic adjustments to where raw materials are sourced, products are manufactured, and goods are sold may allow them to mitigate the impact to their bottom line.

Licensors should review and reevaluate existing licensing arrangements alongside their licensees to determine if key commercial terms like exclusivity, termination triggers, and royalty calculations may be implicated by tariffs and how that impact may be mitigated.

All parties holding critical intellectual property should consider registering their intellectual property and increasing their intellectual property monitoring and enforcement measures to protect against infringement or counterfeit goods.

Editor’s Note: All tariff rates included in this article reflect the point in time when this article was posted, and may be incorrect as US tariff policy continues to evolve.