“We’ve stopped shipping to the US.”
Zhang Qian, a founder based in Shenzhen, has watched helplessly as US tariffs have ramped up since April. At first, his partners weren’t overly concerned. But now, anxiety has set in.
That shift began in earnest on April 10, when the US government announced it would raise “reciprocal tariffs” on Chinese imports to 125%. “Once tariffs exceed 100%, it’s impossible for our products to stay competitive in the US,” Zhang told 36Kr. After two straight weeks of late-night meetings and cost modeling, his team finally reached a painful decision: stop shipping to the US.
Tariffs this steep will inevitably hurt Chinese exporters trying to sell into the US. For hardware that taps artificial intelligence in particular—a class of emerging consumer tech products—the impact could be even sharper. That’s because the US is not only the world’s largest consumer electronics market but also the primary field of competition for many Chinese AI hardware companies.
For startups, North America—especially the US—is typically the first testing ground. US consumers are quick to adopt new technologies and have strong purchasing power. Kickstarter remains a go-to platform for many of these companies to gather early backers and validate market demand.
“We’ve observed a simple rule internally: for every 50% increase in tariffs, net margins for AI hardware companies drop by 10%,” said Li Xiao, a seasoned investor in hardware businesses. “The best players in the field might see 15% net profit margins. Most others land somewhere between 5–10%. If retail prices don’t go up, tariffs of over 100% will push every US-facing AI hardware business into the red.”
Smart glasses, including models that leverage augmented reality (AR) and AI, are among the few lucky exceptions. On April 12, US President Donald Trump announced a tariff exemption list covering smartphones, laptops, memory chips, and hard drives. Multiple industry insiders confirmed that smart glasses are currently included on that list.
But the exemption might be short-lived. On April 13, the US secretary of commerce stated that smartphones, computers, and other electronics would be subject to separate tariffs, with semiconductors possibly following within a month.
Li’s firm recently held an all-hands meeting to assess the impact of tariffs across its portfolio. The conclusion: for AI hardware projects shipping to the US, especially mid- to late-stage ones, tariffs are a major disruptor that warrant recalibrating financial models and valuations.
Having seen US tariff policy shift multiple times in just two weeks, the firm has now put all US-focused AI hardware projects on hold, awaiting the outcome of trade talks between China and the US. The partners agree that while a new trade arrangement may emerge, the era of zero tariffs may be over.
Reliance on the US market
Tariffs affect different Chinese exports to varying degrees. AI hardware, unfortunately, sits squarely in the high-impact category.
“In general, the more innovative a product category is, the more dependent it is on the US market—and the more vulnerable it becomes under US tariffs,” said Gao Fei, another investor in AI hardware. “The US has the strongest consumer purchasing power and the highest tolerance for innovation. Most AI hardware companies target US consumers for their initial product validation.”
The US also leads in e-commerce penetration, which makes it easier for new AI gadgets to enter and gain traction. “The e-commerce scale of all 40 over European countries combined doesn’t match the US alone,” Gao added, citing 2024 revenue figures: Europe reached about USD 659.1 billion, while the US exceeded USD 1 trillion.
Consider some of the debutants at this year’s Consumer Electronics Show (CES): AI-driven glasses, companion toys, and bird feeders, among others. Many of these products first launched via Kickstarter, which mainly serves US and European backers.
Other categories, like pool-cleaning robots and lawnmowers, are specifically designed for homeowners in the US, Europe, and Australia. These products are even more dependent on Western markets. Public data shows that North America accounts for 35% of global lawnmower sales and 36% of pool-cleaning robot sales.
Even mature segments like AR glasses have strong US exposure. A leading AR glasses company told 36Kr that the US makes up 30–40% of its global sales. “If tariffs do reach extreme levels, we expect short-term pressure on our US operations.”
Some products, like children devices and toys built around local Chinese IP, currently sell only in China, and thus remain insulated—at least for now.
Can companies raise prices?
There’s a sense of cautious optimism that China’s supply chains, particularly for smart hardware and consumer electronics, aren’t easily swapped out. That stickiness could give companies leeway to hike prices. Anker Innovations, for instance, has already bumped up its Amazon prices in the US by 20%.
But most companies haven’t followed suit. “Among the startups we’ve invested in, not one has raised prices yet,” Li said. “Most are early-stage brands with little name recognition. The competition, both domestic and international, is fierce. They are reluctant to raise prices until trade negotiations conclude.”
“If tariffs lock in at 125%, they will eventually have to raise prices,” he added. “But price hikes come with real risks.” Most AI hardware products are considered lifestyle upgrades, not essentials—meaning consumers can easily opt out. For a USD 5 charger, a price bump may not register. But raise the price of a USD 2,000 lawnmower to USD 2,800, and customers will notice.
In the firm’s view, mid- to late-stage startups are under the most pressure. Their projections take the sharpest hit. Early-stage companies aren’t immune either, but they are generally more nimble and can shift course if needed. For now, tariffs aren’t a dealbreaker, but that could change.
Loopholes and limits
One workaround for high tariffs is so-called “gray customs clearance,” where exporters work with third-party brokers to underdeclare the value of shipments, thereby reducing tariff costs. This practice, while long tolerated, is legally dubious.
Lately, it’s under more scrutiny. Media reports suggest that US customs is ramping up inspections. Whereas only around 1% of containers were checked in the past, today it’s closer to 30%. The future of gray customs clearance—how much longer it lasts, and how much volume it can handle—remains uncertain.
“Smaller AI hardware players might still use gray clearance to ship to the US during early crowdfunding phases, where shipment value is only USD 1–2 million,” Gao said. “But as companies scale, they’ll need to go legit.”
He believes gray clearance will remain an option under high tariffs—just not for everyone. “The risk is on the brokers, not the startups. The higher the tariffs, the more lucrative the business becomes. Someone will always take that bet.”
Not putting all eggs in one basket
Most founders and investors are stuck in wait-and-see mode.
36Kr has learned that typical overseas inventory can sustain sales for two to three months. Many companies have already paused new shipments, holding out for clarity on tariff negotiations.
The founder of a smart glasses brand predicted that tariffs will eventually stabilize at around 30–40%. At that level, he believes Chinese products can still find ways to remain competitive.
“Tariffs above 100% are just too extreme. They won’t stick,” said the founder of an AI companion toy startup that recently launched on Kickstarter. Still, he’s preparing for the worst. His team is drafting a new global strategy that would reduce the US market’s share of sales from 70% to below 50%.
Even with the headwinds, the US will likely stay on the map for Chinese AI hardware firms—just not in the driver’s seat.
“Kickstarter will probably still be the first stop for Chinese startups going overseas,” Li said. “The US market still sets the tone for innovation. Even with 100% tariffs, early adopters here might still pay.”
The challenge, according to Gao, is diversification.
“In the long run, this could be a healthy reset,” he said. “It has made everyone realize they can’t rely on the US alone. They need to think globally from the start.”
Chinese exporters are now slicing up the global market with sharper precision. At the top of the priority list: North America and Europe. Next come Japan, South Korea, Singapore, and the Middle East. Southeast Asia and Latin America trail behind, with India and Belt and Road Initiative countries rounding out the lineup.
“Each market has its own needs. The key is finding the right value-for-money fit,” Gao said.
Some players are already adapting. The AR glasses company mentioned earlier has carved out a diversified footprint spanning Europe, East Asia, Southeast Asia, and the Middle East.
“Our product is currently exempt from US tariffs, so sales haven’t been hit,” the company’s founder said. “But even if tariffs spike, we’re confident our global business will remain steady.”
For a time, AI hardware and US expansion were at the top of investors’ wishlists. Now? Not so much. Gao said several firms have paused investments in projects targeting the US market.
Still, he sees that as a temporary reaction. “Investor sentiment can flip in a few months. That’s just how the market works.” In fact, he sees this as an ideal moment to back promising startups at more favorable valuations. The playing field is more level now, and that gives investors leverage.
“China’s manufacturing ecosystem is unmatched. Some of these precision gadgets, like AI glasses, can only be made here. And China’s AI capabilities are world-class. None of that changes just because tariffs go up,” Gao said. “The road to global expansion won’t stop here.”
KrASIA Connection features translated and adapted content that was originally published by 36Kr. This article was written by Wang Fangyu for 36Kr.