America’s trade wars are creating a major disruption in the
electronics market. Even if Trump backs down while declaring victory – a habit
of his – most of the damage is done.
American electronics manufacturers generally expressed support
when Trump started attacking China. There was strong agreement that China
cheated on various aspects of trade, especially theft of intellectual property
(IP) and the kind of market manipulation that uses artificially low prices to
create a dominant share. And there was pretty much a consensus that Huawei was
the most flagrant violator of all.
American firms hadn’t pushed the government for action
earlier for the usual business reasons: 1) they weren’t united – some companies,
particularly those that were simple importers, weren’t much concerned; and 2) businesses
think strictly in the short-term and, if they see profits and therefore big executive
bonuses for the next few years, are highly unlikely to risk cash in hand for a
stronger position later on.
Trump’s original rhetoric was greeted positively in the
electronics press, and even his initial tariff threats were thought to be reasonable.
Very quickly, however, businesses began to see that this was a war without a
plan. The large multinationals know a lot about how other cultures work, and
they observed from the start that bluster and bombast wouldn’t be effective
against China. Rather, the Chinese would likely become more hostile when
confronted with a loss of face (not actually all that different from other peoples).
Finally, as a totalitarian state, China could suffer negative economic
consequences without serious political turmoil.
The consensus as this is written, in late August of 2019, is
that the Trump trade war will be a disaster for the US.
Electronics firms are quickly moving to restructure their
supply chains to cut out Chinese partners, a process that will take some time
and be very expensive. Prices are sure to rise for a while, and that will
affect sales and profits. But that’s the least of the consequences.
Despite Trump’s rhetoric, manufacturing jobs will not be
moved back to the US, but will go instead to Southeast Asia and perhaps to a
limited extent to India. The American public doesn’t appreciate that the
percentage of China’s contribution to products like the iPhone is in the
low-single digits of its overall value. Moreover, even if current electronics assembly
jobs were offered at a reasonable wage in the US, few would want them – who
would choose hours of sitting at a bench repeatedly gluing tiny parts together –
at the minimum wage?
More important, it’s well known that the contract
manufacturers of these electronic devices are investing heavily in robotics,
with the goal of making the basic unskilled labor go away as quickly as
possible. After a slow start because of the difficulty of creating robots with
a fine sense of touch, that hurdle has been cleared and robot assemblers should
be widespread in a few years. As a result, any assembly jobs brought to the US
would likely disappear quickly. Ironically, it’s not impossible that
some of the new, fully automated, assembly factories will come back to the US –
they just won’t bring jobs with them.
In addition to the immediate logistical issues, there is a
long-term problem of trust. China, which was already interested in becoming more
self-sufficient in areas like advanced chip fabrication, is now accelerating
its efforts toward independence because the country’s leaders see US suppliers
as inherently unreliable. Even if Trump is replaced with a rational president,
there will be a justifiable concern that another unstable and irrational leader
could rise at any time.
The electronics press notes that the US tech industry’s situation
will soon mirror the lack of trust that is already evident in agriculture,
where China is moving rapidly to break its dependence on US farmers. There’s strong
agreement that once this is done Chinese purchases will likely never reach
prior levels. The consequences for Intel, Qualcomm, and Cisco will be much the
same as for soybean farmers.
Ultimately, Trump is likely to get his wish of significantly
cutting China out of US trade. Then, the US and China will quickly become
direct competitors in selling advanced electronics and items with high levels
of intellectual property.
Will buyers in Asia, the Middle East, Africa, Europe, and
South America prefer American products over Chinese because the latter includes
stolen IP and often comes with the kind of market manipulation that Huawei has
practiced? Not likely when there’s an important difference in prices.
And this brings up the final point: most of the world shared
the US’ uneasiness about Chinese practices, but Trump neglected to build any
alliances for his effort, instead simply attacking those that didn’t follow his
lead. Internationally, there is little sympathy or support for Trump’s America.
Buyers, including in Europe, are therefore even more likely to favor the
Chinese and lower prices.
We shouldn’t be surprised if, in just a few years, Huawei
cell phones and related gear completely dominate Apple, Qualcomm and other US
companies in world markets.
