What Impact Are Chinese Tariffs Having on the Tech Industry?

U.S. tech companies depend on Chinese products and have historically sold a large volume of goods in the country — but the trade war could negatively impact those relationships.

chinese tariff

At hearings in Washington on June 17, the first of seven days of testimony related to President Donald Trump’s plan to put 25 percent tariffs on an additional $300 billion worth of Chinese imports, numerous U.S. companies testified that they need a resolution to the trade war: they simply don’t have good options for sourcing products from other countries.

The new tariffs would be the next move in an escalating trade war with China. After President Trump raised tariffs from 10 percent to 25 percent on $200 billion worth of Chinese goods in May, China responded a few days later by raising tariffs on $60 billion worth of U.S. goods, increasing tariffs of 5 to 10 percent to as high as 25 percent.

The Impact on the Technology Industry

Investopedia calls out tech as one of the industries that could be hardest hit by the trade war. HSBC listed companies with high sales volume in China and concluded that companies in the tech sector such as Broadcom, Micron, Marvell Technology, Texas Instruments, would be among the most impacted by the tariffs.

Bloomberg points out, however, that tariffs aren’t the only punitive measures China can take. U.S. companies could be subject to new regulations, slow, bureaucratic approvals on deals, and encouragement for Chinese consumers to boycott U.S. goods.

An article in The Atlantic adds that China is employing another tactic: While raising tariffs on U.S. goods, it’s lowering tariffs on products from other countries. Author Chad P. Brown, Senior fellow at the Peterson Institute for International Economics, writes, “One way to offset the rising prices to Chinese consumers otherwise stuck buying American is to lower their costs if they switch. On average, it is now 14 percent cheaper in China to buy something from Canada, Japan, Brazil, or Europe than it is to buy something from the United States. Beijing is making it worthwhile for its consumers to develop new commercial relationships. And once those new ties are formed, the Chinese may not bother to switch back.”

Is Any End in Sight?

Optimism that the U.S. and China could reach an agreement took a nosedive in May when China failed to keep commitments in the draft deal. However, on June 18, President Trump tweeted: “Had a very good telephone conversation with President Xi of China. We will be having an extended meeting next week at the G-20 in Japan. Our respective teams will begin talks prior to our meeting.”

U.S. businesses will be holding their breath in anticipation of the outcome, hoping to avoid what seems like an inevitable outcome: higher prices and, possibly, slowing sales. In its request for its representatives to appear at the hearings beginning June 17, the Consumer Technology Association stated that it has identified 139 line items for technology sector products on the list of proposed tariffs and the annual import value from China of those items exceeds $167 billion.

The CTA states, “Products on this new list not only impact the global enterprises of America’s most well-known brands, they also impact the heart of the American entrepreneurial spirit — small and medium-sized companies manufacturing in the United States and innovative startup companies utilizing U.S. intellectual property, research, design, and engineering. Particularly for our small and medium-sized member companies, even a small additional tariff can be a heavy burden and can mean the difference between turning a profit and going out of business.”  chinese tariffs