Donald Trump’s Tariff Policies are Putting Tech Companies in US at Great Risk
The Trump administration will make you question whether his era is treating all companies equally. The Apple Company was able to evade a serious problem during recent rounds of the president’s tariffs regarding trade with China. However, the bigger question is, how susceptible has the big tech company become as a result of his unpredictable tariffs as well as trade policy with the world’s biggest partner in tech?
The United Sates made an announcement of imposing new tariffs that would affect numerous goods for consumers that have been imported from China; fortunately, Apple has had sheer luck of escaping from the trouble that would have resulted to a huge tax being placed on its products. The company got armed to teeth with a Calvary of lobbyists that were able to prevent the government from placing huge taxes on its products.
So, what does the policy mean for the big tech regarding China? Additionally, how will companies such as Amazon, Google, Facebook and other huge tech companies in the country steer clear of getting caught in the middle of the constant trade problems that the president creates for China.
One of the key reasons for hurling grenades at China is that the administration wants tech companies such as Apple to create their products from within the country instead of having them assembled in China even though a lot of the parts are produced in the US such as glass along with chips.
Nonetheless, management as well as market analysts do not see manufacturing of these products in the country as a clever business move since consumers will have to pay more money in order to get the Apple products. The president however does not see things this way and therefore is persistent in promoting as well as giving the tech companies in Silicon Valley threats and Apple has been one of the companies to fight back.
Before the most recent tariffs to China imposed by the president, the Apple and Cisco CEOs, guided by their activists as well as advisers made public declarations claiming that their companies were set to undergo loses if Trump went ahead with $200 billion more tariffs targeted at China. These statements did not deter the president from moving forward by placing a 10% tariff on $200 billion worth of Chinese imports. Unfortunately, that rate is set to rise up to 25% by the end of the year.
This move will definitely affect globalization, and not in the positive way. In mid-2018, International Monetary Fund (IMF) made an announcement claiming it is reducing its previous expectations regarding development. The IMF reduced its prediction regarding global economy in 2018-19 to 3.7% due to slower development in high-economies, increased trade tensions as well as higher rising in oil prices.
A lot of companies apart from Apple have also been lobbying the government to stay off the tariff list, nevertheless, not many companies have the same influence as Apple and a lot of semiconductor companies are more susceptible financially to the effect of China’s tariffs.
In the beginning of 2018, Wall Street analyst firm Jeffries approximated that business with the Chinese accounted for $105 billion or rather 23% for 16 companies in the country with Apple as well as Intel included with semiconductor companies being at an even greater risk.
The CFO for Micron Technology, David Zinser has made a statement saying that the United States chip company gross margins are set to suffer because of the recent tariffs imposed by Trump. Micron gets half of its revenue from China. Additionally, whilst Apple has a huge amount of business in China, there are numerous semi-conductor companies that have a high profit exposure in China.
Skyworks Solutions is another smaller chip-based company that shares their opinions in regard to the recent tariffs on products from US sold in China. The company manufactures chips used in mobile phones all over the planet. The company claims that the majority of sales into China also support a lot of carriers from the US and Europe. China is the main production hub to worldwide OEMs who choose to collect as well as assemble their products through manufactures that have been contracted for shipping all over. The company also added that their end market sales to China were 30% of the company’s revenues.
Chip companies in the country that sell from 30% to 50% of their products to China are in danger. Placing tariffs on China is a great gamble for Trump’s administration and it is already having negative effects on tech companies, if these tariffs continue, the local employees and citizens are the ones set to suffer in the long-run.