On Thursday, Bloomberg reported the U.S. government had reached a phase one trade deal with China. Though both sides still need to draft official paperwork, the publication notes the 15 percent import tax on Sino made electronics set for December 15 isn’t going into effect. Moreover, Washington is considering a 50 percent rollback on existing trade tariffs.
Trade Deal Details
Since the legal text of the phase one trade deal isn’t available, the entirety of its terms and conditions are unknown. However, Bloomberg confirmed the arrangement revolves around two central items.
On the Chinese side, officials committed to purchasing large quantities of U.S. agricultural products. Beijing also agreed to crack down on local firms that infringe upon foreign intellectual properties. Conversely, Washington will not attach new import taxes on the $160 billion of Sino-made electronic devices.
Notably, the government’s December 15 tariffs would’ve impacted smartphones, video game consoles, laptops, and tablets. Indeed, Business Insider reported the new import taxes might have increased the cost of Apple’s iPhones by $120 to $150. Moreover, representatives from Microsoft, Nintendo, and Sony asked for an exception from future trade war levees in June. The game system makers argued new import taxes would significantly harm their profitability and that of their retail partners.
Semiconductor Industry Impact
In addition to U.S. electronics makers, the trade war truce should also have a positive impact on American semiconductor makers.
In particular, Washington’s interest in reducing recent tariffs on Chinese-manufactured goods should benefit many chipmakers. Since the trade war began 20 months ago, the U.S. government has imposed a 25 percent levy on $250 billion of Sino products and a subsequent 15 percent duty on $110 billion worth of other imports.
As a result, American chip makers that outsource their production have taken a major revenue hit. But with international trade hostilities de-escalating, U.S. component manufacturers should see a decline production cost shortly.
Furthermore, in July, The Burn-In reported Apple asked some of its suppliers to relocate part of their supply chains out of mainland China. However, industry analysts predicted a 15 percent relocation of iPhone production capacity would take at least three years to complete. Similarly, Google reportedly sought to source production of its smartphones in Vietnam to avoid Chinese import duties.
With the new Sino-American trade pact in place, both tech giants might reconsider moving production out of the Asian superpower. Indeed, more multinational corporations that were previously wary of outsourcing in China might alter their plans. If so, U.S. chipmakers that have mainland-centered production capacity could see a return to early 2018 profitability in the near future.