Fresh off an apparent victory in his trade scuffle with Mexico, President Donald J. Trump ratcheted up his ongoing trade war with China on Monday. Trump warned in a CNBC interview that if China President Xi Jinping fails to appear at the G-20 summit later this month in Japan, he’ll immediately slap an additional $300 billion in tariffs on Chinese imports, which could be bad news for the technology and manufacturing sectors.
So far, China has not confirmed Xi’s attendance at the G-20 meeting. Chinese Foreign Ministry spokesman Geng Shuang also declined to confirm a meeting between the two leaders to reporters at a daily news briefing in Beijing on Monday, according to Reuters. “If there is concrete news on this, China will release it in a timely manner,” Geng said.
It’s not clear whether the Reuters report was the reason why Trump called CNBC on Monday to defend his position. Regardless of his impetus, Trump made his position clear. “We’re expected to meet, and if we do that’s fine, and if we don’t — look, from our standpoint, the best deal we can have is 25% on $600 billion,” he told CNBC.
The new tariffs would mean nearly every imported good from China would be taxed. “If we don’t have a deal and don’t make a deal, we’ll be raising the tariffs, putting tariffs on more than — we only tax 35% to 40% of what they said, then they had another 60% that’ll be taxed,” Trump added.
Manufacturing and tech stand to lose
Trump’s latest threats could spell real trouble for American manufacturing and tech, which are already feeling the pinch of the more than $200 billion in tariffs placed on Chinese imports last month. A long-term trade war between the two nations where the new tariffs take effect could raise the price of an iPhone by as much as $160, some analysts estimate, and everything from computers to appliances could jump in price over the next few months.
The trade tiff is also spooking businesses: Just 75,000 new jobs were added in May, well below analyst estimates of 180,000 and a far cry from the 224,000 added in April. Worse yet, the solid job numbers from March and April were revised downward, tempering optimism that the U.S. economy was weathering Trump’s tariff threats well.
Experts warn that there is cause for worry, especially if the tariffs continue longer-term, as consumers will end up paying more for the tech they buy. China supplies a large number of computing hardware to the U.S., which may become more expensive if manufacturers decide to protect their profit margins. Prices for consumer appliances have already begun to rise, and retailers including Walmart, Macy’s, and Costco have all warned of impending price increases on a wide range of products, both tech and non-tech.
“Trump’s belief that trade wars are easy to win is ill-informed,” Michael Sury, finance lecturer at the University of Texas at Austin, told DigitalTrends. “So too is his overly simplistic belief that the application of tariffs amounts to a tax on the Chinese.”
Price hikes won’t be uniform, and will be difficult to predict
Sury says that whether or not prices will rise on any given item will depend on its novelty in the market. The concept is called “elasticity,” a particular product’s capability to maintain demand in the event of a change in price. Foreign goods that are in high demand without many substitutes are considered “inelastic.” In this case, it’s likely much of the tariff, whether 5, 10, or 25 percent, will be passed nearly in its entirety to the consumer.
However, goods where substitutes can easily be sourced elsewhere may see much more modest increases, if any at all. Sury told DigitalTrends that figuring out which tech might become more expensive as a result of Trump’s tariffs is difficult, however. “It is a pretty broad category that can encompass generic products, white-labeled devices, as well as specific brand names that garner real consumer loyalty,” Sury said.
“As a whole, these products tend to be viewed as discretionary items where purchase decisions can be put off, or where there may be other substitutes that are acceptable,” he explained. “However, with so much technology manufacturing coming out of China, in many instances it may be hard to find acceptable substitutes.”
Because of this, if you’re planning a large electronics purchase such as a computer or new kitchen appliance, it might actually be wise to purchase it as soon as possible to limit your exposure to possible price increases.
Tech companies need to think long-term
Other experts say that the industry as a whole needs to think long-term when it comes to China. With the 2020 election looming, there’s not much reason to believe that Trump’s trade strategy will measurably change over the remaining 19 months of his current term. It may be time to reconsider manufacturing so much of our tech in China.
“Longer-term, U.S. corporations could try to compensate by moving some production out of China. Some will come back to the U.S. However, some will go to other countries like Vietnam,” tech entrepreneur Vaclav Vincalek told DigitalTrends. Vincalek says productivity is flat in China amid rising costs, so some tech manufacturers have already left the country.
Tariffs may accelerate this move away from using Chinese labor for manufacturing. ” If the duties are here to stay, the vendors will do a spreadsheet calculation and find another location where they can manufacture their goods,” he explained.
But in the short-term, we all should be prepared for some kind of increase across a wide variety of tech goods, as these strategy shifts will take time to implement. This means both manufacturers and consumers will likely find themselves contending with the effects of Trump’s trade policy as soon as this summer — as will the overall economy.
“These increased costs translate into lower purchasing power for both value-added resellers and end consumers,” Sury said. “That puts a damper on growth.”
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