Escalating US-China trade war harms Korean, Japanese, Taiwanese smartphone parts suppliers

Posted on : 2019-05-16 15:25 KST Modified on : 2019-05-16 15:25 KST
US to impose 25% tariffs on nearly all Chinese products
US President Donald Trump and Chinese President Xi Jinping in Beijing
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.

Tariff would raise consumer prices for iPhone products

Smartphones are manufactured in China, the factory of the world, by assembling the various parts imported from other countries: memory semiconductors from South Korea and Vietnam; system semiconductors from Japan, Malaysia, Singapore, South Korea, and Taiwan; and displays from Japan and South Korea. When Apple creates the plans for a product at its main office in California, Apple’s subcontractor Taiwanese firm Foxconn (Hon Hai Precision Industry Co., Ltd.) brings together parts from all over East Asia and puts together the completed product at its sprawling factories in China. Some of South Korea’s leading companies, such as Samsung and LG, are key participants in this supply chain, and they have reaped considerable rewards from that. China’s smartphone exports were worth US$106.9 billion in 2016, accounting for 5.1% of its total exports.

If the 25% tariff is actually imposed, the price of the latest iPhone model, the XS, is expected to rise from the current level of US$990 to US$1,159. That will inevitably lead to reduced sales in the ultimate export destination of the US (28%). When a single iPhone is sold at US$650 in China, China only pockets US$8.5 of that amount.

The companies exporting intermediate goods are bound to suffer as much as China, and the South Korean economy, which has come to depend upon exports to China, will be directly impacted by the worsening trade war. Figures provided by the Korea International Trade Association (KITA) show that China has accounted for around 30% of South Korea’s exports of intermediate goods since the mid-2000s.

On May 15, the Nihon Keizai Shimbun quoted Foxconn chairman Terry Gou as saying that there was “no end in sight for the trade war.” Some Taiwanese firms with operations in China are reportedly considering the option of moving factories to countries such as Vietnam.

By Gil Yun-hyung, staff reporter

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