According to the news report by Bloomberg, China can hurt US technology firms in this escalating trade war.
US President Donald Trump’s latest round of tariffs against Chinese goods being imported into the country could instigate China to strike back by making life difficult for American companies that do business in their country. And of all the companies operating in China, the US technology firms are the most vulnerable.
While the imports that China has from the US are much smaller than what the US has from China, and so can’t match the tariffs Trump has imposed, the Asian giant can hit back in other ways, which would still be as damaging for American companies.
The country could impose new taxation or regulations against American companies, which could lead to slowing down the deal approval process. The Chinese government could also just outright ask its citizens to boycott all American products.
An example of how China could slow things down is Qualcomm. The world’s biggest chipmaker is still waiting for final approvals and clearances to come from Chinese regulators so that it can go ahead and acquire NXP Semiconductors NV for $40 billion.
If China chooses to do so, it can destroy this deal by refusing to approve it. In fact, NXP has given Qualcomm a deadline of July 25 to get Chinese approvals, otherwise the deal will be cancelled. Thanks to these issues, the share price of NXP dropped by as much as 4.7% in trading, which is the company’s biggest drop since June 25 this year. Qualcomm saw a 1.6% drop in its share prices.
According to data analyzed by Deutsche Bank AG, American corporate revenue in China – along with exports to the Asian country – gives the US a trade surplus to the tune of $20 billion. Of the companies that deal in China, it is the chipmakers and other electronics makers that get the highest portion of sales in the country.
According to data collated by Bloomberg, California-based component maker depends on Chinese sales for more than 60% of its revenue. And this is not a one-off case. Some of the biggest tech companies are dependent on China for their sales. For example, NVidia Corp.’s Chinese sales account for 23.5% of its revenue. Similarly, Broadcom Inc. gets 23.1% of its revenue from China. Apple Inc. makes 21.3% of its revenue from the Asian giant and Tesla Inc. gets 14.9% of its revenue from there.
Apple only just re-entered the Chinese market and Tesla is just establishing itself in the country.
This is not the first time that China would use non-tariff related tactics to hit back at another country. In the past, when relations soured with countries like Japan and South Korea, the Chinese authorities would tighten regulations, create more stringent consumer safety laws and use the state-run Chinese media to push for mass boycotts of those countries’ products.
While there are a lot of things that the Chinese government can do to make things much tougher for American companies, there are a much bigger issue at stake here – the global electronics supply chain. The very complexity of this supply chain binds the two countries together in a way that could only increase trade tensions between the two nations.
For example, a chip made in Oregon will be sent to Chengdu in China for final assembly into a computer for a US company like HP, and then would be shipped back to the US for sale. Now, in this process, it would be difficult to see which party is not impacted by the trade war – both countries lose.