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The latest tariffs adopted by the Trump administration against China should not help solve the problem of intellectual property theft by US companies, but could rather harm American companies, especially in the technology sector.
When the corporate earnings season begins this week, companies will be informed of the impact they are expecting or will see on the $ 200 billion of Chinese goods, whether on their bottom line or overall business. Until now, some technology companies have begun to warn of problems in the supply chain, the need to raise prices or affect their profits, because of additional costs that initially tariffs of 10% on a wide range of products.
The tariffs will affect a wide range of products, from cradles to circuit board assemblies, and prices will inevitably rise unless companies decide to allocate their profit margins. In the coming weeks, investors will have a better idea of the impact.
"You're going to see a lot more comments on rates," said Dan Hutcheson, President of VLSI Research Inc. "Here are two reasons why rates will slow industry growth: prices will rise and create uncertainty . Rising prices for all the goods involved will cause businesses to doubt the demand for electronic products during the upcoming holiday season. If they are not convinced that the market will be there, they will hesitate to buy semiconductors to build up stocks for the holidays. "
Some investors believe that the concerns over the US-China trade war are one of the reasons why technology stocks are one of the biggest contributors to the current market turmoil this week.
"It's like two cars rushing to the cliff to see who was going to put the brakes first."
In a mid-September survey by Blind, an anonymous workplace social network, 75.5% of technology employees responded negatively to the question of whether rates would be good for business. During the public comment period, many employees came from companies that had written to the US Trade Representative to make them understand that tariffs would be bad for their businesses and their technological innovations, such as Apple Inc.
AAPL, -0.88%
AAPL, -0.88%
AAPL, -0.88%
, Cisco Systems Inc.
CSCO, -3.31%
and Intel Corp.
INTC, -1.27%
.
Already, some technology companies have issued warnings about the impact. Micron Technology Inc. memory chip manufacturer
MU, + 0.87%
warned that its profit margins will be slightly affected by tariffs on Chinese products. The company based in Boise, Idaho, has an assembly plant in China where its memory modules are assembled.
Last week, at its annual meeting with analysts, HP Inc.
HPQ, -5.15%
stated that it included the impact of tariffs in its forecasts. "We expect a big wind before the mitigation measures," said Steven Fieler, chief financial officer of HP. "However, we are actively working on the development of mitigation plans to anticipate the decline of standing winds throughout the [fiscal] 2019 as our strategies take full effect. "
A spokeswoman for HP said the company "would continue to manage" but did not deepen this remark.
The term "mitigation" probably refers to price increases. Price increases, especially if they occur during the holiday season, could be against consumers who turn to consumer electronics as a gift idea. Another mitigation option might be to move some manufacturing or assembly facilities.
With tariffs, the United States seems to want to punish China for some of its trade policies, for example by forcing American companies to share some intellectual property, called forced technology transfers, in exchange for access to Chinese market. bigger market. "Rather than achieving the government's goal of Chinese companies unfairly obtaining US technology, the proposed tariffs would actually inflict damage on US high-tech industries," he said. wrote Mary Lovely and Yang Liang of the Peterson Institute for International Economics. short this year.
Instead, the measures taken are detrimental to US companies, who regard tariffs as an additional tax on goods and do nothing to mitigate the real core problem. In addition, China is so entrenched as a global manufacturing leader that many companies may find it too expensive or tedious to move manufacturing elsewhere.
"It's pretty unlikely to make consumer electronics anywhere else," said Aaron Emigh, managing director and co-founder of Brilliant, a Silicon Valley startup that manufactures a smart home control panel. "It is unique in its ability to evolve, and particularly in the way the supply chain is integrated in China."
There is a whole ecosystem of suppliers "that you can not find anywhere else in the world," said Emigh, adding that there were cheaper manufacturing options outside of China, but that these were considered as too risky, including shipping customs.
"China is truly unique in how a small business can harness this ecosystem and take full advantage of this supply chain and produce a high quality product in large quantities," he said.
Doreen Edelman, a lawyer with Baker Donelson in Washington, DC, where she is co-chair of the firm's global sales team, told her clients that it was time to conduct an internal review of their entire chain. global supply.
"If you're a global company, you're better located," said Edelman, adding that large companies had the resources to study other manufacturing options, check their tariff numbers, file exclusions and take advantage Other measures likely to delay part of the impact. . "Small businesses are less likely to absorb these tasks and they will fire or fire workers."
Investors are waiting to learn more about the impact, which could eventually hurt the US and Chinese economies. Economists are already predicting that the trade war will reduce growth, and a recent report by the International Monetary Fund indicates that the United States could lose more than 0.9% of its gross domestic product in 2019.
"If I were on the Chinese side, I would bet that there would be a huge fall in the stock market that would cause Trump to collapse. [on tariffs]Said Hutcheson of VLSI. "If I were on the side of Trump, I would say we want to slow down their economy enough. They both play with fire when it comes to their own savings. It's as if two cars rushed to the cliff to see who was going to put the brakes first. "
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