Trump finishes posturing and squares up to China

President Donald Trump has often proved consistent with campaign promises, and kicking off a trade-war with China is just another example of his reliability.

The Mexican wall is still in the works, a bill to ease gun-carrying rights in schools passed House in December and federal regulations are disappearing faster than a toupee in a hurricane. Protecting the US people from the evil foreigners and their dastardly business ambitions was another which is now moving from dream to reality. Steel and aluminium tariffs are close and now Chinese technology is firmly on the radar.

Yesterday saw the signing of a Memorandum which the spin doctors in the White House say targets China’s economic aggression. 1300 products and services have been reviewed over the last couple of weeks, though the list has not been published yet. Ambassador Robert Lighthizer has been tasked with releasing this list within the next 15 days, though it is suspected there will be a heavy Chinese technology influence to it.

“This has been long in the making,” said President Trump during the signing ceremony. “You’ve heard many, many speeches by me and talks by me, and interviews where I talk about unfair trade practices.

“But we have one particular problem.  And I view them as a friend; I have tremendous respect for President Xi.  We have a great relationship.  They’re helping us a lot in North Korea.  And that’s China [the problem].”

The US has a trade deficit which Trump wants to address, and part of reversing this trend is to put Silicon Valley back on its mantle. While Silicon Valley still is viewed as the place to be worldwide for technology firms, this strangle-hold on the industry has been waning in recent years. Eastern Europe, India and China are just three of the regions across the world which has been making waves in technology, but part of the reason for China’s rise could be deemed as an uneven playing field.

China’s economy is generally protected by the government, as table stakes and working conditions do generally favour domestic companies over international businesses. This does seem to be the playbook when it comes to making an impact on the international scene; generate a ridiculous cash cow in the domestic market before taking advantage of advantageous trading conditions on the global stage. It’s the best of both worlds; just ask Huawei.

Few countries have taken a stance against this apparent advantage Chinese companies have on the global stage, mainly because of the riches which are on offer should you be able to break into China. It is one of the largest and fastest growing economies in the world, the world’s largest manufacturing economy and exporter of goods and second-largest importer of goods. In terms of digital transformation, many of these businesses are behind the curve compared to Westernised economies, and the increasingly affluent and digital aware consumers are prime for profit.

This is where Trump has to be very careful. Yes, standing up to China fulfils one of his campaign promises and inspires US citizens to be the self-appointed defenders of the free world once again, but is this the most pragmatic approach to encourage growth in the US technology sector? We’re not too sure.

When you look at companies like IBM, Google, Amazon, eBay, Intel, Apple, Microsoft and HP, these are not organizations which are going to make the desired profits without looking to the growth economies of the world. These companies, the internet giants to a lesser degree, are looking to economies like China to replace the lingering growth which was previously in the US. Putting walls up around countries will not work out well for the US tech sector; growth and profitability is in the international markets not the US domestic market.

Another interesting consequence of such a trade-war is not just the selling side, but manufacturing as well. It would be perfectly reasonable to assume that as well as blocking trade from the US, the Chinese government would be just as difficult in terms of manufacturing goods in the country as well. This would be bad news for Apple.

On the surface, Apple being unable to manufacture its products in China would be a win for Trump, as it might possibly force jobs back in the US, but it could have a very detrimental impact on Apple as a business. This is a very interesting article which explains the disaster it would be.

In short, for Apple to maintain current profitability levels with the manufacturing process taking place in the US, each unit would have to be sold in the $30,000 – $100,000 range. This is down to capacity. The US does not have the skills to meet market demand, Tooling engineering is an example, meaning supply would be reduced from hundreds of millions to millions. The US would of course be able to generate this workforce, but this would take years. This would put Apple is a very difficult situation.

Tariffs sound fantastic to Trump supporters, some of whom are becoming increasing afraid of the term ‘globalization’, and they do keep the President honest to campaign promises, but it doesn’t seem to be a very pragmatic move. It seems to be a short-term gain for a long-term catastrophe.

Now your correspondent does not claim to be a genius and would assume the people advising the President are more intelligent; surely these scenarios have been examined. Perhaps President Trump doesn’t care about the long-term of the US economy. Logically, we are not too sure how this benefits the US tech sector. The global economy is a thing and there is no going back. Success in a digital world which does not recognise international borders will only come with cooperation. Anyone who thinks trade barriers are going to be a good thing are quite frankly deluded.