Rising tensions between China and the United States have led to growing concerns that a tariff war will have a negative impact on the electronics industry. Amazingly, the industry has been spared thus far, and with good reason. However, even if tariffs aren’t imposed, there is a silent battle between the two countries that already has impacted the global electronics ecosystem.
Watching the countries levy their recent tariffs has been like watching two opponents playing chess. Each has made a move intended to weaken the other’s political position. Thus far, tariffs have been aimed at key resources, such as food and raw materials.
China even has targeted key regions that produce those products, such as the states that vote first in the next presidential election or that have members of Congress in strategic positions.
Everyone Gets a Tariff?
The electronics industry has been spared the tariff wrath because any tariff that impacts one country surely will impact the other.
For example, imagine the process of building a smartphone from an imaginary U.S. mobile phone vendor. The intellectual property for the mobile processor comes from a variety of countries throughout North America, Europe and Asia. The chip is designed and fabricated in the U.S. and assembled and tested in Malaysia.
The processor is then integrated into a phone that is designed in Taiwan and assembled in China with other components, such as the display and memory, coming from Korea. The completed phones are sold throughout the world, including in both China and the U.S.
A scenario much like this applies to building just about any electronics device, such as a PC, car stereo, smartwatch, TV, or even embedded electronics like the control boards for appliances.
With the IP, components and final systems being developed in multiple regions and shipped from one region to another, even during the manufacturing process, it is extremely difficult to put tariffs on those items.
Any such tariffs would have a negative impact on the rest of the value chain, which ultimately would result in negative impacts on every country and region involved in the development and manufacturing of electronics components, systems, software and services.
It would be possible to put tariffs on the raw materials used in the manufacture of electronics, but the result would be the same. As a result, the global nature of the electronics industry is what should protect it from the rising tariff battle between China and the U.S.
Tit for Tat
Even though the electronics industry has been spared from the China and U.S. tariff attacks, it is very much at the center of other political attacks that often are less visible. Just about every country involved in the electronics industry is involved in some form of related protectionism.
The electronics industry is important not only for economic growth and prosperity, but also for national independence and security. Examples of protectionism can be seen through laws and regulations, as well as other actions by courts, regulatory bodies, and even preceding administrations. The number of these acts is countless. As with all government intervention in commerce, protectionism has become an obstacle that all companies must navigate.
In the case of China and the U.S., the two have a long history of actions — some clear and some covert. The U.S. has banned the transfer of some technologies to China, banned Chinese firms from bidding on government contracts, blocked the acquisition of U.S. companies by Chinese companies, and influenced carriers not to sell or support products from Chinese companies. Most of those actions have been taken under the guise of national security and IP protection, which are a concern.
Meanwhile, China has required U.S. companies to have joint ventures with Chinese companies to do business in the country, forced special terms for licensing technology to products sold within China or by Chinese companies, and held up or forced the divestiture of assets for mergers involving U.S. companies.
Those actions have been ongoing for decades and are not targeted solely at China or the U.S.
ZTE’s Story
The U.S. just announced severe penalties on Chinese telecommunications equipment vendor ZTE, not permitting any U.S. company to provide components to it. While this adds to the political hostilities, the actions are the result of ZTE’s noncompliance with U.S. laws and a Commerce Department agreement, not the current tariff battle.
So, even though the electronics industry has been spared the initial wrath of the tariff battle, it has been, and continues to be, a pawn in the greater political battles between the two countries. Despite these challenges, the levels of innovation, cooperation and even competition among companies, countries and regions continues to grow. It is unfortunate that the electronics industry is influenced by global politics, but it is a testament to the industry that it continues to thrive despite the political interference.
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