Over the last year, technology companies were hopeful they might remain at least somewhat shielded from an intensifying bilateral trade war. After numerous exemptions, a far-reaching tax hike is finally poised to reach tech products. If it happens, large tech companies, at least, will be just fine.
In the last three waves of Trump administration tariffs, tech products made in China and sold directly to Americans were either kept off the hit list altogether or given last-minute reprieves. Many in the industry are now convinced the hammer is about to fall.
A proposed new wave of 25% tariffs, set to go into effect as early as next month, would target some $300 billion worth of goods, more than half of which are technology products. They include laptops, smartphones, tablets and—have these people no compassion at all?—toy drones.
The tech industry’s response to this looming prospect has turned from denial to apoplectic. In a letter sent to the U.S. Trade Representative on Thursday, Apple Inc. said the tariffs “would result in a reduction of Apple’s U.S. economic contribution” and “global competitiveness.” A separate letter from a group that includes Dell Technologies Inc., HP Inc., Intel Corp. and Microsoft Corp. said the new taxes “threaten to disproportionately harm multiple U.S. interests” and that they would endanger the companies’ vast tax contributions and employee bases.
The Consumer Technology Association, an industry trade group, kicked in some portentous numbers. According to an economic analysis it conducted with a consulting firm, the new tariffs would increase the prices of cell phones in the U.S. by 14 percent ($70 for the average phone), laptops by 19 percent ($120 on average) and video game consoles by 19 percent ($56 for the PlayStation 4 and its ilk).
In Silicon Valley, all eyes next week will be on the Group of 20 summit in Osaka, Japan, where Donald Trump will meet with China President Xi Jinping and just maybe prevent a tech trade apocalypse. “We’re preparing for the worst and hoping for the best,” says Bronwyn Flores, a policy communications specialist for the Consumer Technology Association. “We’re hopeful for some sort of agreement, or even a delay of this latest list, to come out of Trump and Xi’s meeting.”
One irony, though, is that the big tech companies may be in the best position to weather a wave of harsh tariffs. Companies like Apple, with strong global brands, high-end products and $225 billion in cash, can pass along additional costs to customers. They can also afford to diversify parts of their supply chain and shift production to countries like Taiwan or Vietnam.
But smaller companies will struggle to find the resources needed to scope out new manufacturers. That’s one takeaway of a story published this morning, by my colleagues Shelly Banjo and Spencer Soper, on merchants selling products on internet marketplaces like Amazon. “These businesses—many of them one-person shops—are especially vulnerable because they lack big companies’ wherewithal to ride out the uncertainty as well as the negotiating power to shift tariff costs onto their suppliers,” they write.
The Trump administration wants China to play fair, but it’s also looking for ways to curb Big Tech’s power. Even if the new tariffs help the U.S. achieve its geopolitical goals, they may end up undermining the government’s antitrust interests.