As the Trump administration prepares to publish a fresh set of trade proposals later this week, tech businesses are preparing for the effects of a growing trade war between the United States and China. The ramifications could be massive, affecting the sales, earnings, and stock prices of major U.S. technology companies with significant exposure to China, such as Cisco Systems Inc. (CSCO), Dell Technologies Inc. (DVMT), HP Inc. (HPQ), International Business Machines Corp. (IBM), Intel Corp. (INTC), and Microsoft Corp. (MSFT).
According to Barron’s, the trade measures also threaten a lengthy number of smaller firms, including Unisys Corp. (UIS). Until lately, U.S. chipmakers with significant China exposure were thought to be the technology businesses most impacted by these tensions.
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Tech Trade-War Targets
The new measures would harm the US technology sector by restricting China’s capacity to invest in it and by preventing US technology exports to China. According to The Wall Street Journal, the particular tech industries predicted to be most impacted are those that China deems crucial to achieving the goals of its Made in China 2025 project, which aspires to make China a worldwide leader in ten main fields of technology.
Sophisticated information technology, robots, aircraft and aviation components, advanced rail equipment, electrical generating and transmission equipment, pharmaceuticals, and advanced medical devices are among these areas. Nonetheless, the measures are likely to have a broader impact on the IT industry. (Also see: US Government To Block Chinese Investments In Tech Firms.)
Big Tech Damages
The seven information and communications technology firms mentioned above will be particularly affected by the escalating trade war because they are part of one of the key sectors of the Made in China 2025 initiative that the White House is attempting to thwart with the new initiatives, as well as having significant exposure to China.
According to a recent assessment by the US-China Economic and Security Review Commission, Cisco, Dell, HP, IBM, Intel, Microsoft, and Unisys obtain more than 50% of their goods and components from China. Because of this vulnerability, many IT corporations’ supply chains are subject to risks such as a trade war.
However, there is still a lot of ambiguity about how broad the new laws will be and how Beijing will respond. This uncertainty is putting many IT companies in the dark about what to anticipate and how to prepare for the future. “The goal posts here keep moving, generating sorrow and problems,” remarked Dean Garfield, CEO of the Information Technology Industry Council, to the Wall Street Journal.
FANGsto Be Spared
The FANG stocks—Facebook, Amazon, Netflix, and Google’s parent Alphabet—are likely to be relatively immune to the impacts of Chinese tariffs and punitive moves. According to Barron’s, Facebook and Google’s search functions are prohibited, while Netflix and Amazon have just a little presence in China, reducing their vulnerability to a trade war.
However, Apple Inc., which delivered more than 41 million iPhones to China in the previous fiscal year, received about 20% of its income from China during the same time. While President Trump informed Apple CEO Tim Cook that iPhones made in China would be exempt from tariffs, it’s unclear what Chinese President Xi Jinping would do in retaliation. However, based on Xi’s threats to retaliate, Apple should prepare for collateral damage at the very least. (Also see: Taiwan Semi Warns: Trade War Will Hurt Apple.)
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