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US President Donald Trump and Chinese President Xi Jinping in Beijing

The announcement by the Office of the US Trade Representative (USTR) on May 13 that it’s moving to impose up to 25% in tariffs on nearly all Chinese products, including smartphones and laptop computers, is a big blow for IT companies in South Korea, Japan, and Taiwan, which export a large percentage of their electronic parts to China. The growing uncertainty in the export market caused by the trade war between the US and China is likely to make matters even worse for Samsung Electronics, which already saw its profits plunge in the first quarter of the year.

According to a report released last year by the International Monetary Fund (IMF) titled, “A New Smartphone for Every Fifth Person on Earth: Quantifying the New Tech Cycle,” which analyzed the global smartphone supply chain, “the supply chain has evolved over the last few years and become more complex,” consisting of “large shipments [of intermediate goods] from several Asian countries to China, where final manufacturing and assembly of most smartphones takes place. [. . .] The main contributors to this complex supply chain were Japan, Malaysia, Singapore, South Korea, and Taiwan Province of China.”

The report said that South Korea’s 2016 exports of smartphone parts to China were valued at US$24.4 billion, more than any other country, with exports to China accounting for 80.3% of total exports. The other countries cited in the report were Japan (US$9.2 billion, 41.1%), Taiwan (US$4.6 billion, 87.2%), and Malaysia and Singapore (US$3 billion, 54.1%). These figures show that South Korea had a greater dependency on China than these other countries both in terms of the value of its exports and their share of the total. If the US and China’s trade war escalates even further, it could rattle the supply chain that has propped up the South Korean economy. The 3,800 categories of goods that are subject to the 25% tariffs as announced by the USTR includes a large number of electronic products that had hitherto been spared, including smartphones, laptop computers, digital cameras, monitors, and video game consoles. Slapping a steep 25% tariff on these products in the US market would harm not only Chinese companies but also the companies that supply the parts.