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The Trade Numerologist: Apple Feels Heat of US-China Trade War

10 September 2018 John Miller

This column is based on data from Global Trade Atlas.

As we discussed last week, the car industry has taken big hits in the global trade war, which so far has targeted industrial sectors.

However, another key sector of US-China trade now appears to be in the crosshairs: mobile phones.

Last week, Apple Inc., the most prominent maker of those technologies and one of the world's richest companies, filed its first statement with the US Trade Representative saying that new tariffs planned by US authorities could hurt its bottom line.

"Because all tariffs ultimately show up as a tax on US consumers, they will increase the cost of Apple products," the computer firm wrote in a letter to USTR. "It is difficult to see how tariffs that hurt U.S. companies and U.S. consumers will advance the Government's objectives with respect to China's technology policies."

A tariff on cell phone trade between the US and China would be a blow to tech companies, and their logistics and supply firms. Apple makes most of its products in China, and few consumer goods are as emblematic of modern global trade as Apple's iPhone, as suggested by the tiny inscription on their back: "Designed by Apple in California. Assembled in China".

The US is the biggest import market for cell phones in the world.

Cell phone imports, first 5 months, 2018 (change v. 2017)

  • US $20.1 billion (+4%)
  • Hong Kong $15.5 billion (+23%)
  • Netherlands $8.2 billion (+15%)
  • Japan $6.6 billion (+13%)
  • Germany $4.9 billion (+4%)
  • UK $3.9 billion (-1%)
  • Austria $2.7 billion (-9%)
  • Slovakia $2.7 billion (+45%)
  • France $2.5 billion (+55%)
  • Russia $2.2 billion (+16%)

A recent study by IHS Markit concluded that a 10% tariff imposed by the US on the iPhone X would increase its import cost to around $405 from $368.

Theoretically, that could help rivals like South Korea's Samsung, but they also manufacture in China. The country is, by a very large margin, the biggest seller of phones to the US.

Top suppliers of cell phones to US, first 7 months, 2018

  • China $21 billion
  • South Korea $2.6 billion
  • Vietnam $2.4 billion
  • Taiwan $166.8 million
  • Hong Kong $140.6 million
  • Mexico $106.2 million
  • Japan $90.9 million
  • Malaysia $20 million
  • Thailand $17 million
  • India $13.2 million

Apple says it employs 10,000 people in China directly, and around three million via suppliers and contractors. In addition, China is Apple's second biggest consumer market.

Last week, as he hit back at Apple, President Trump upped the overall ante with Beijing, threatening tariffs on an additional $267 billion in imports from China. The duties, which could be rolled out in a hurry, would come on top of the taxes of 25% on $200 billion the US has been readying.

That's on top of the first two batches of tariffs. On July 6, the US put tariffs on $34 billion worth of auto parts, electronics, parts in airplanes and machinery. On August 23 cane tariffs on $16 billion of chemicals and electronic parts.

The US has been invoking a 1974 trade law known as section 301 which allows the administration to impose duties on a foreign country it asserts are hurting American business interests.

One reason Trump keeps on threatening new tariffs is that the current ones don't appear to be having their desired effect. Overall, US imports from China have risen this year, increasing 9% to $296.8 billion over the first seven months.

US imports from China, first 7 months

  • 2009: $159.1 billion
  • 2010: $193.9 billion
  • 2011: $218.1 billion
  • 2012: $235.8 billion
  • 2013: $241.7 billion
  • 2014: $255 billion
  • 2015: $269 billion
  • 2016: $251.5 billion
  • 2017: $273.5 billion
  • 2018: $296.8 billion

The dollar has risen against the yuan this year, making US imports from China less expensive. So far, the stronger dollar has especially boosted shipments to the US of Chinese commodity goods that are price-sensitive.

Top increases in US imports from China, first 7 months, 2018

  • Salt, sulfur, lime, plaster $334.7 million (+54%)
  • Chemical products $968.7 million (+49%)
  • Base metals $361.3 million (+45%)
  • Food preparations $248.6 million (+40%)
  • Railway equipment $426.5 million (+38%)

Meanwhile, US imports from China have fallen in other, more niche categories.

Biggest drops in US imports from China, first 7 months, 2018

  • Fertilizers $39.2 million (-72%)
  • Clocks, watches $336.3 million (-15%)
  • Aluminum $1.7 billion (-14%)
  • Vegetables, tubers $236.5 million (-13%)
  • Enzymes, glues $211.7 million (-9%)

Washington's goal is to make a dent in imports of more significant products, stuff that ordinary people buy-- like phones.

In its statement to the USTR, Apple said it hoped that Washington "will reconsider these measures and work to find other, more effective solutions that leave the US economy and US consumer stronger and healthier than ever before."

In a response, President Trump wrote on Twitter: "Apple prices may increase because of the massive Tariffs we may be imposing on China - but there is an easy solution where there would be ZERO tax, and indeed a tax incentive. Make your products in the United States instead of China."

The company already employs around 80,000 people in the US, and works with over 9,000 suppliers. It hasn't said yet whether it will expand operations.

Posted 10 September 2018 by (John Miller, Guest Blogger)

The Trade Numerologist is IHS Markit's unique weekly look at global trade by award-winning journalist John W. Miller, formerly of the Wall Street Journal, using proprietary numbers from IHS Markit's Global Trade Atlas database, the world's most complete and accurate set of trade numbers.

What topic would you like the Trade Numerologist to cover? Email tradenumerologist@gmail.com with comments and questions.

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