Trade war: It’ll be easy to lose

My father’s words still ring loud a couple of decades later. “No one wins a war.” We were talking about military conflicts, yet those same five words are just as true for a trade war. US President Donald Trump clearly has other ideas.
“Easy to win,” he says!
One has to wonder how the US will prevail in a trade conflict with China when its own companies have the most to lose, notably in the technology sector. Electronics is one of the largest slices of US-China trade. Apple Inc.’s iPhones are already made in China, by a Taiwanese company, so slapping on import tariffs at both borders won’t affect sales much in the world’s most populous nation.
It could upset the apple cart in America, though. Apple would be forced to raise prices, then hope that Foxconn Technology Group chairman Terry Gou might be willing to build iPhones there. He did that once before, in Brazil, and wasted a lot of money. He’s just done the same in India after that government slapped a tariff on smartphones, but not to build iPhones. Instead, Gou’s FIH Mobile Ltd is expanding to service Chinese brands such as Xiaomi and Oppo already in the nation.
It would be quite the irony if Trump’s tariff plan saw non-Apple devices made in the US. And it would certainly help South Korea’s Samsung Electronics Co. gain ground.
I suppose it’s germane to point to Foxconn’s planned Wisconsin plant as evidence the company is willing to set up in America. But it shouldn’t be forgotten that Gou’s price was close to $20 billion—Foxconn even asked for $200 million upfront—and that he’s planning to make display panels. IPhone assembly is far less automated and highly seasonal; Gou’s going to need a lot more than $20 billion to make iPhones there.
Turning then to Intel Corp., Qualcomm Inc., Micron Technology Inc. and Broadcom Ltd. Here we have four huge semiconductor firms that not only rely on China for sales, but which need to grapple with a national policy—backed by tens of billions of dollars of state money—to wean China off foreign technology.
A trade war would be the perfect cover for Beijing to promote domestic chips while at the same time incentivizing US companies to establish operations (and share tech expertise) if they want to sell locally. It’s possible the boards of Intel or Micron may balk at the idea of committing more capital to China amidst the fog of war, but they already have facilities or investments in the country so the smarter move may be to keep plowing ahead. A trade war could also make it more difficult to repatriate money, making local investment a better option.
Most of Qualcomm and Broadcom’s chips are made in Taiwan. If tariffs are slapped on those, then Taiwan Semiconductor Manufacturing Co. can simply expand its China facilities—taking more of its technology to the US’s biggest rival.
Now let’s look at the reverse. Only a handful of Chinese technology hardware companies are significant exporters: Two are in the dying PC sector, three are handset and equipment makers with negligible US operations, and there are a few component suppliers that ship to factories in China.
I haven’t touched on FANGs or BAT, the major internet players in both countries. They’re more services than merchandise firms, so tariffs won’t affect them in the same way. It’s likely they’ll get caught up in broader nationalistic rhetoric just as they attempt to move into opposing markets, but without much of a beachhead so far, there’s not a lot to lose.
So, good luck with that trade war, Mr. Trump. You may think it’s easy to win, but for
American technology, it’ll be easy to lose.
—Bloomberg

Tim Culpan is a technology columnist for Bloomberg Gadfly He previously covered technology for Bloomberg News