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21 Jul 2019 9:59
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  •   Home > News > International

    Donald Trump's trade war with China is rattling nerves in the birthplace of the smartphone

    One of the big losers of Donald Trump's trade war with Beijing is American tech companies that rely on Chinese manufacturers. Here's what that could mean for people in the market for a new phone.

    In the world's biggest electronics market, the US-China trade war is biting.

    The heart of Shenzhen's tech industry is Huaqiangbei market, a massive collection of vendors selling everything from fake iPhones to circuit boards.

    The ground floor components section of the market is buzzing with activity — but not for everyone.

    Lin Hongyu, who sells a common electrical part used in everything from digital cameras to televisions, told the ABC that business is the worst he has seen for 20 years.

    "You can see the effect through exports. If they are down, then people aren't making products, and they don't need to order components," Mr Lin said.

    Another electronics wholesaler, Zhang Yaqin, said her factory has recently shed staff.

    A few months ago, more than 300 people worked there. Today it is closer to 200.

    "When business was good, workers would do overtime, their salaries would be high. But many have left because the overtime has dried up," she said.

    Shenzhen is sometimes called China's Silicon Valley.

    It is home to some of the world's largest telecommunications, gaming, robotics and electronics companies. Chances are, your smartphone was assembled here.

    For more than a year, some Chinese electronics exporters have had to endure the hit of a 10 per cent tariff on exports to the US.

    Others though who are mainly reliant on China's domestic market said their business was holding up relatively well.

    But recent moves by President Donald Trump to apply a 25 per cent tariff to a much wider range of goods, including Chinese-made smartphones, is causing more concern.

    How a trade war could drive up the cost of smartphones

    About three quarters of smartphones bought in the United States come from China.

    The Apple iPhone is embossed with the phrase: "Designed by Apple in California. Assembled in China."

    Its design may be American and its components may come from the Netherlands, Taiwan and South Korea, but the final assembly is likely to happen in Shenzhen.

    An estimate by the US Consumer Technology Association believes the most recent tariffs will drive up the average price an American pays for a smartphone by $AUD99.

    That means the biggest beneficiaries of the trade war will be other brands, such as Samsung.

    The company does the majority of its manufacturing in South Korea and Vietnam, so its prices will not increase in the US.

    Chinese-made laptops are set to increase even more, by $AUD174 for American consumers.

    The direct tariffs will not make any immediate difference to Australians and consumers outside the US, but the intended effect of them — moving US manufacturing out of China — is likely to eventually bump up costs.

    "China can deliver the quality companies like Apple want at the cheapest price," James Laurenceson of the Australia-China Relations Institute at UTS said.

    "If you have government decisions that force companies to locate in some territories and not in others, then by definition you're going to be raising costs for consumers," he said.

    Former ANZ economist Warren Hogan said the industry should be experiencing a drop in prices now that so many people around the world have smartphones.

    "This trade war could actually have a perverse effect on that process. It has the potential to actually keep the price of these products elevated for a longer time," he said.

    Apple lobbies White House for exemption as tariffs loom

    Since Mr Trump imposed tariffs on China in March 2018 to combat unfair trade practices, major American companies have been looking at ways to shift their manufacturing out.

    But instead of opening factories in the US as Mr Trump hopes, most manufacturers looking to relocate want to remain in low-wage countries.

    This month, Apple reportedly asked its suppliers to look at the feasibility of moving 15 to 30 per cent of their production capacity from China to South-East Asia.

    But Professor Shen Dingli from the Centre for American Studies at Fudan University said leaving China would be difficult.

    "[The US] need the supply chains and the assembly lines. I think they would be reluctant to go. It will be a painful process for them," he said.

    Michael Pettis, an economist at Peking University, said pulling out of China may help some companies avoid tariffs, but the costs could eventually be passed on to consumers.

    "For those companies producing Christmas toys, for example, it would be easier. It's hard to move an airplane assembly line out of the country," Professor Pettis said.

    "To move out of the country will definitely raise the prices for consumers."

    Countries like Vietnam and Indonesia now have lower wages than China, but they lack the production scale.

    "Vietnam doesn't have the infrastructure to move these goods around the supply chain and also the huge quantities of skilled labour that China has," Dr Laurenceson said.

    "It's not just a simple case of running to a nearby low-wage country that will keep prices down," he said.

    In the meantime, Apple is asking the US Trade Representative's office to exempt it from tariffs.

    The tech giant argued it would harm Apple's ability to compete with Chinese rivals like Huawei, which is fighting a separate technology battle with the US.

    Huawei is facing US restrictions on acquiring American-made chips, which could potentially hurt its ability to compete with Apple and other fast-growing Chinese brands like Xiaomi and Oppo.

    With such entrenched differences between the US and China on trade, many in China's manufacturing heartland say they are not optimistic of any immediate breakthrough, even though Presidents Trump and Xi are meeting for the G20.

    "I think the average person just hopes the trade war can be resolved soon," component seller Hu Bin said.

    "Hopefully for our business, there are brighter days ahead."

    © 2019 ABC Australian Broadcasting Corporation. All rights reserved

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