Everyone to lose some sales to trade war

Tesla, the canary in the mine?

Jon Peddie

Automobile prices rose by almost 20 percent on Tesla's website in China over the weekend, after the United States and China each imposed $34 billion in tariffs on each other. In 2017, China was Tesla's second-largest market globally, with 17,000 of its cars sold in China that brought in $2 billion in revenue. (The Wall Street Journal)

[A picture containing map, text Description generated with very high confidence] If Chinese consumers slow down, or stop buying Teslas, either due to costs or national pride/insult Tesla will slow down its purchases of semiconductors. Tesla like most automobile builders has a long supply chain and adequate inventory, so the effect won’t be felt till possibly as late as Q1’19, but it will be felt.

Taiwan, with its deep investment in the global electronics and tech supply chains, will feel the pinch of mounting trade tensions between the US and China quickly, possibly as soon as the second half of 2018. China may be exacerbating the problems for the supply chain with some of their long overdue environmental protection measures. 

The worsening trade fight between the world's two largest economies will not only harm enterprises and consumers in both countries, but also seriously impact multinational businesses. Taiwan closely associated with the supply chains of the US and China will be caught right in the middle of it all, especially given Taiwan’s investments in China’s manufacturing sector.

Taiwan Semiconductor Manufacturing Company (TSMC) founder Morris Chang earlier noted that the breakout of the US-China trade war could lead to changes large enough to alter the development of China and global semiconductor sectors. Foxconn chairman Terry Guo also indicated that the trade war is the largest challenge facing his business group, prompting the group to actively seek effective measures to cushion possible negative impacts.

Semiconductor industry sources said that both TSMC and Foxconn have already hedged their bets to minimize potential risks. TSMC, for instance, has started volume production of 16nm process at its 12-inch wafer fab in Nanjing, China to better serve its customers there, while Foxconn has kicked off construction of a new panel plant in Wisconsin, the US.

PC makers need to be worried. Even though computers and communications products are excluded now from higher tariffs, they won’t be in a second round of tit-for-tat tariffs, which will very likely be triggered soon.

According to reports out of Taiwan, Acer and Asustek have given production orders to Taiwan ODMs including Quanta, Compal, Pegatron, Inventec and Wistron, which have assembly operations in China. The two Taiwan-based PC vendors can’t turn to other partners in other countries in time to offset the impact, and can only take a wait-and-see attitude

On another front, China is aggressively enforcing strict environmental protection policies, which in turn adds operation pressure to Taiwan manufacturing plants in China. As a supply chain partner of Apple, for instance, Taiwan-based PC maker Career Technology has seen part of its production lines in Suzhou, Jiangsu province suspended following recent inspections by environmental authorities. This has affected the shipment of Career's upstream partner Matrix Test Lab, according to a recent report in Digitimes.

While almost half of the world's chips are designed in the U.S., much of the output is sent for assembly, test and packaging in China. Most of the $57.2 billion in revenue from semiconductors used in the United States, based on electronics equipment manufacturing, would be subject to tariffs under the new Trump administration tariff policies. Therefore, the large number of consumer electronics products manufactured and finished in China and imported into the U.S. will also see their costs rising. If their costs go up, they will be passed on to the consumers. This will have a swing cycle where some consumers will rush to buy a product they have been thinking about buying to get it before the price goes up. Then, when prices do go up, other consumers will pull back their purchases, or buy  less expensive products they originally wanted.

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