Consumer Tech Gets Reprieve as US, China Spar Over Tariffs

Information technology products, from cellphones to personal computers, have largely escaped the latest salvo of US-China trade measures despite accounting for a significant portion of bilateral trade. (Reuters Photo/Sean Yong)

By : Michael Martina and Cate Cadell | on 10:00 PM April 05, 2018
Category : International, Tech

Beijing. Information technology products, from cellphones to personal computers, have largely escaped the latest salvo of US-China trade measures despite accounting for a significant portion of bilateral trade.

The office of the US Trade Representative (USTR) on Tuesday (03/04) raised the stakes in a growing trade showdown with China, targeting 25 percent tariffs on some 1,300 industrial technology, transport and medical products.

China hit back within hours with its own threatened duties on US imports including soybeans, planes, cars, whiskey and chemicals.

The US proposed list of $50 billion in tariffs is aimed at forcing Beijing to address what Washington says is deeply entrenched theft of US intellectual property and forced technology transfer from US companies to Chinese competitors through initiatives such as the "Made in China 2025" plan.

But advanced information and communication technology (ICT) products, among China's top priorities, were conspicuously absent from Trump's tariffs list, giving both countries' companies in the sector good reason to breathe sighs of relief.

"Just about every major ICT product was exempted," one US industry source said of the US list. "They did target Made in China 2025, but with a caveat. They weren't going to unduly harm the consumer."

USTR said it developed the tariff targets using a computer algorithm designed to choose products that would inflict maximum pain on Chinese exporters but limit the damage to US consumers.

The list got an initial scrub to remove products identified as likely to cause disruptions to the US economy and those that needed to be excluded for legal reasons, with remaining products ranked based on impact to consumers.

Cellphones, laptops, PCs, servers, and telecoms equipment are all largely exempted under Trump's plan, which still must undergo a public comment period of about two months before being finalized.

Tech Exports

The Semiconductor Industry Association says US companies have about half of global semiconductor market share, constituting the United States' fourth ranked export behind aircraft, refined oil and automobiles.

UBS Securities has said that Chinese electronics and tech exports account for 43 percent of total exports to the United States.

But much of the value of that trade comes from US semiconductors that are sent abroad for low value-added processing before finding their way back to US consumers registered as US imports.

If the US government had slapped duties in such imports, they would have dealt a blow to one of the United States' industrial pillars.

The Information Technology & Innovation Foundation (ITIF), a US technology think tank whose board includes representatives from top companies such as Apple Inc, Amazon Inc, Cisco Systems, Google, and Intel Corp, said in a submission to the US government during the tariff investigation that 10 percent duties levied on Chinese ICT imports would slow the growth of US output by $163 billion over the next 10 years.

Another tech industry insider told Reuters: "It's possible the reason is that the US companies will be damaged by this and the government is taking that into account."

Among tech products not exempted were magnetic hard drives and flat-panel television sets, and the US duties were heavily focused on industrial manufactured goods, such as machines, robots, motors, valves, medical devices, and pharmaceuticals.

The tariffs are designed to change negotiating dynamics between China and the United States over trade and give Trump leverage to get concessions out of Beijing.

But Trump is also focused on his promise to voters to reinvigorate US manufacturing jobs.

Jacob Parker, vice president of China operations at the US-China Business Council, warned that any efforts by Trump to get US companies to move production back home through tariffs could backfire, much as when President Barack Obama put tariffs on Chinese tires only to see tire imports from Indonesia and Taiwan surge.

"You could certainly see a focus on re-shoring operations. That's not going to happen," Parker said.

"If we stop importing a product from China, we'll just import it from the next lowest cost producer, such as Korea or Vietnam or Malaysia, rather than make it in the US and pay more for it."

Reuters

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