How Trump's Trade War Is Threatening Big Tech
The ongoing battle is taking a toll on global supply chains.
October 11, 2019 at 6:48 pm
In a new, escalated phase of President Donald Trump’s trade war with China, the United States government has placed new tariffs of 15% on Chinese imports including televisions, smart speakers and drones as of September 1. Tech giant Apple is not immune as it will see 33 of its 50 hardware products slapped with the new importation tax. On December 15, the ante will be upped when tariffs will be placed on more popular electronics such as smartphones, laptops, tablets and video game consoles. During that round, Apple will be forced to pay more to bring in MacBooks and iPhones. This will have an adverse effect on companies like Apple, who may be inclined to hike the prices for their wares. Thusly, the burden will be passed down to consumers, especially Black Americans, who studies have shown own a lot of the devices in question at the highest rates.
For a little background on the trade war between the US and China, it is between the world’s top two economies. The US is the world’s largest importer, while China is the biggest exporter. Trump’s rationale for waging the fiscal battle is what the White House has described as China’s “pattern of unfair trade practices and theft of American intellectual property.” The administration’s aim at imposing the tariffs is to make China reconsider its policies on “opening its markets to American companies and ending its practice of requiring firms operating in China to hand over valuable technology.” The war kicked off last year with the US placing tariffs on solar panels and washing machines, then steel and aluminum. In response, China’s Ministry of Commerce declared that the US “has launched the biggest trade war in economic history so far,” and the nation struck back by taxing the import of 128 American products, including aluminum, steel piping, airplanes, cars, pork, soybeans, fruit, and nuts.
As time has progressed with no resolution in sight, more products had tariffs imposed on them, and tech companies became vulnerable to the war’s effects. Though most of the products affected before were parts and components for electronics, the industry has experienced a $10 billion hit since July 2018. With the recent tariffs, finished goods (i.e., fitness trackers, digital cameras, desktop computers, lithium batteries, speakers, flash drives) will now be in the mix. According to reports, $112 billion in Chinese-produced goods will be affected by the new round of tariffs.
Apple has become the “poster child” for companies impacted by the trade conflict. Apple products are assembled in China by Taiwan-based manufacturer Foxconn before being shipped worldwide. The new tariffs that went into effect on Sunday will affect popular Apple items such as AirPods, Apple Watches, and likely iMac desktops. When the second round of tariffs hit in December, the import of MacBooks and iPhones could be taxed. Furthermore, the company’s stock tends to fall whenever Trump mentions them in a tweet or statement involving tariffs.
In July, Apple wrote a letter to the government in which it states that “all of Apple’s major products, including iPhone, iPad, Mac, AirPods, and Apple TV” will be impacted by the current and impending tariffs, and that would reduce Apple’s economic contribution to the nation.
In August, Apple CEO Tim Cook met with the president to discuss the issue. One of Cook’s main concerns is that the tariffs could give Apple’s top rival, Samsung, an upper-hand. “I had a very good meeting with Tim Cook,” said Trump of the exchange. “Tim was talking to me about tariffs, and one of the things, he made a good case, is that Samsung is their number one competitor and Samsung is not paying tariffs because they’re based in South Korea. And it’s tough for Apple to compete with a very good company that’s not.”
As stated before, companies like Apple will be faced with the dilemma of whether to keep customers content with the same pricing or increase costs to offset the cost of importing. Though analysts from JP Morgan anticipate that Apple will just eat the higher costs of importing, it is not out of the question for the company to increase its already high price tags. Apple could also file for exclusion from the tariffs.
The impact the tariffs and subsequent rising prices could impact the Black community the most. It is well-known that Black people are a consumer powerhouse when it comes to the products we want. In February of last year, a report by Nielsen put Black Buying Power at $1.2 trillion, and the numbers show we love our electronic devices. “African Americans are on the cutting edge of household device ownership,” reads another Nielsen report titled “From Consumers to Creators: The Digital Lives of Black Consumers.” According to Nielsen’s numbers, the percentage of Black households owning devices in Q1 of 2018-- including smartphones (90%), tablets (68%), wireless headphones (48%), smart TV’s (47%), Internet-to-TV streaming devices (40%), smart speakers (29%), smartwatches (28%)-- was higher than that of non-Hispanic White households and the total population.
According to a report published last month by the Pew Research Center, Black ownership of smartphones helps bridge (some of) the digital gap between Whites and us. It found that “Black and Hispanic adults have mobile devices such as smartphones in shares similar to whites. About eight-in-ten Whites, Blacks and Hispanics own a smartphone.” It goes on to say, “Mobile devices play a larger role for Black and Hispanic people when it comes to their online access options. Some 25% of Hispanics and 23% of Blacks are ‘smartphone only’ internet users – meaning they lack traditional home broadband service but do own a smartphone. By comparison, 12% of Whites fall into this category.”
Though research has shown that Black people prefer androids to iPhones, there are still millions of us who use Apple’s most coveted product. Should Apple and other companies bump up the price, any progress made in the closing of the digital gap may be reversed. Pew Research Center data from 2014 shows that “Blacks, Hispanics, and lower-income smartphone users are about twice as likely as Whites to have canceled or cut off service because of the expense” as it is. Higher costs could only exacerbate those numbers.
Again, if you’re planning on getting new devices, it’d be best not to wait. You won’t see any price increases right now, but they may happen in the coming months. “You’re not likely to see price increases for consumers starting Sunday,” Consumer Tech Association spokeswoman Bronwyn Flores told CNBC. “But you might start to see it in November for Black Friday, so if you want a new TV for the Super Bowl, you might want to get it soon.” Keep in mind; the tariff action also isn’t restricted to electronics. Around 92% of apparel, 68% of home textiles and 53% of footwear sold in this country are also impacted, according to the American Apparel and Footwear Association.