New tariffs on Chinese trade will devastate U.S. tech industry

US-China tariff talks result in price hikes for American citizens

Thus far, the U.S.-China trade war has had an indirect effect on the American tech industry. The field has already suffered because it’s become increasingly expensive to source components like MLCCs. However, the situation changed earlier this week when the Trump Administration announced $200 million in new tariffs on Chinese goods. The US Trade Representative stated the U.S. would impose a 25 percent tax on imported Sino-made smartphones, TVs and laptops starting on June 25.

Industry analysts argue the U.S.’s escalation of hostilities will have a seriously deleterious effect on the American electronics sector.

How the New Tariffs will Impact Apple

Low-cost Chinese manufacturing has allowed domestic electronics companies to price their products competitively, but the new tariffs will disrupt that long-standing practice. The Council on Foreign Relations (CFR) noted the new taxes would force electronics manufacturers to raise prices to remain profitable. “It’s likely to be a fairly considerable shock to consumer prices,” said CFR fellow Brad Setser.

International commerce experts have noted that the new import tax will put the squeeze on the already ailing U.S. smartphone market. J.P. Morgan stated Apple would need to raise prices on its iPhones by 12 percent to offset the new production costs. The government new trade sanction will be especially problematic for the Big Tech firm as its latest iPhone model was a poor seller due to its high price point.

Bank of America noted Apple can’t just resolve its pricing issues by relocating its iPhone production to the United States. The bank stated the company would need to increase the price of its flagship product by 20 percent to keep its per unit income at the same level. However, the corporation’s high-profit margins and recent pivot to a services business model will help it weather the storm.

How the New Taxes will Hurt Samsung

The Trump Administration’s new trade sanctions will likely be devastating to less economically stable firms like Samsung. In recent months, the telecom giant’s lucrative semiconductor segment has collapsed in the face of a soft smartphone market. Washington’s new tariff will only worsen the company’s financial outlook.

Samsung has been able to mitigate the downturn in its chip business by selling record amounts of its high-end smartphones. However, the new American import tax will also hurt that segment of the company’s business. The U.S.’s steel and aluminum tariffs have already affected the financial performance of the company’s appliance segment.

Though the conglomerate is based in South Korea, it operates two manufacturing plants in China. Consequently, the firm will likely have to raise the prices on its best-selling and pricy Galaxy S10 line. The manufacturer is working to re-center its production operations to Southeast Asia, but the shift will take years to facilitate.

As bad as things will be for Apple and Samsung, both firms have near trillion dollar market capitalization. Their resources should allow them to get through the trade war bruised but intact. However, American electronics component firms like Arrow, Avnet, Intel, and Nvidia aren’t in such a strong position. They’re based in the United States but produce some of their components in China, and they lack robust cash stores.

In the face of such a significant market correction, the landscape of the electronics sector is likely to undergo a significant contraction soon.