By Yoko Kubota and Julie Wernau
BEIJING -- Escalating volleys of tariffs by the U.S. and China
stand to pile pressure on already stressed supply chains,
potentially pinching technology companies and consumers on both
sides of the Pacific.
Proposed tariffs by the U.S., released Monday, would hit
finished technology products such as smartphones and smartwatches,
as well as video game consoles and other consumer products.
Meanwhile, tariff increases ordered by China of as much as 25%
affect some components that go into some of these products,
including semiconductor packaging materials and certain types of
displays.
Both governments are giving themselves room to maneuver in their
latest escalation. China's new punitive levies don't take effect
until June 1. A U.S. decision last week to raise tariffs to 25% on
$200 billion in Chinese goods won't start to bite until around that
time, given the lag for shipping. And Monday's proposal by the U.S.
to slap levies of as much as 25% on the remainder of imports from
China, around $300 billion in products, will take weeks to put in
place.
Companies and trade experts said that, unlike previous rounds in
the year-old trade dispute, the new penalties if unchecked are
likely to drive up costs for more products that would partly be
passed to consumers.
"Both sides are running out of options that will damage the
other's economies without blowing back onto consumers at home,"
said Shaun Roache, chief economist for the Asia-Pacific region at
S&P Global Ratings.
He said that until now, the U.S. focused its tariffs on
components and other intermediate goods, rather than finished
consumer goods. Doing so, he said, raised costs for companies, but
at a level producers and importers could bear largely without
raising prices for American consumers.
Some companies in recent weeks have begun acting on contingency
plans in anticipation of escalating tariffs. Sweden-based telecom
gear-maker Ericsson AB is preparing to shift some manufacturing out
of China to facilities in the U.S., Estonia, Brazil and Mexico, a
spokesman said. Made-in-China cellular-tower equipment, routers and
switches are on the U.S.'s $200 billion list subject to 25%
tariffs.
Taiwan-based AsusTek Computer Inc. said last week that it has
been moving some production bases to Taiwan and Vietnam from China
to limit impact on a U.S. tariff increase on motherboards and
graphic cards.
"We already discussed contingency plans with our suppliers,"
AsusTek Co-CEO Samson Hu said in a quarterly earnings call. "The
impact on us will be minimal, because we adjusted before."
A huge question is what happens to Apple Inc. The company makes
most of its products, including iPhones, in China through contract
manufacturers. While the proposed U.S. tariffs on $300 billion of
Chinese goods includes smartphones, companies may petition that
their products be excluded before the levies take effect in late
June at the earliest.
Apple didn't immediately respond to a request for comment. As of
Tuesday, Apple hasn't communicated major plans to shift production
for key products to Foxconn Technology Group, its main assembler,
people familiar with the matter said. Foxconn didn't immediately
respond to a request for comment.
Apple suppliers have said that fully moving out of China is
difficult: China's skilled workers and well-developed supply chain
are difficult to replicate elsewhere in short order. How long the
tariffs would be in place and whether the two sides can strike a
trade deal also are holding suppliers back from making significant
shifts, they say.
In recent months, Foxconn, which assembles a huge share of
iPhones, has been considering producing the devices in India, an
emerging smartphone market. It is also looking at Vietnam, though
it hasn't said what it plans to make there.
Any fallout on Apple's China production base could be
troublesome for Beijing too. Foxconn is the largest private
employer in China, and the Chinese government wants to keep
employment steady and prevent the trade fight from undermining a
fragile recovery in the economy.
China's Foreign Ministry said Tuesday that tariffs won't solve
the dispute and that while Beijing wants a negotiated solution, its
resolve shouldn't be underestimated. "China does not want or wish
for a trade war but it is by no means afraid of one," ministry
spokesman Geng Shuang said at a weekday briefing.
In the wake of the latest tariffs, Chinese media have amped up
criticisms that stringent U.S. demands in trade talks ultimately
aim to prevent China from moving up the value chain and competing
in the global economy.
One item on the U.S.'s proposed tariff list is made-in-China
lithium-ion batteries. Those batteries are the most expensive
component in electric vehicles, a sector China wants to dominate
globally and has been subsidizing heavily.
A 25% tariff would make it tough for the Chinese imports to
compete with batteries offered by Korea's LG Chem and Japan's
Panasonic Inc., which both already have U.S. production
facilities.
--Stu Woo, Chunying Zhang, Dominique Fong and Trefor Moss
contributed to this article.
Write to Yoko Kubota at yoko.kubota@wsj.com and Julie Wernau at
Julie.Wernau@wsj.com
(END) Dow Jones Newswires
May 14, 2019 10:03 ET (14:03 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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