When a card player doubles down on a high-stakes bet, is that a sign of strength, or an overplayed hand?
That is what investors have to ask after US President Donald Trump threatened to impose tariffs on a further US$100 billion of Chinese imports.
In one sense, such a move could turn the tide of the conflict in Washington’s favor.
Reciprocating tariffs from Beijing, when added to the US$53 billion in trade that is already under threat, would max out China’s ability to retaliate through conventional means.
Chinese imports from the US have exceeded US$153 billion in only two years since it joined the WTO in 2001.
Meanwhile, the US would still be able to threaten another US$350 billion or so of trade in the other direction, thanks to its yawning trade deficit with China.
However, that assumes that China would only resort to conventional means. Recent experience suggests otherwise.
Take the experience of Hyundai Motor Co. The South Korean automaker had been the second-biggest marque in China for much of the past decade before rising tensions over Seoul’s decision to deploy a US missile shield against North Korea boiled over early last year.
With lightning speed, Chinese state-owned media and social media accounts whipped up an unofficial boycott of South Korean products.
Yang Bingyang, a former model who is known online as Ayawawa, took a break from dispensing beauty and relationship advice to call for her 2.7 million Weibo followers to join the boycott.
“I will cancel my trips to South Korea and stop cooperating with [South] Korean companies,” the state-owned Global Times quoted her as saying.
Events took an even darker turn when tensions between China and Japan ramped up in 2012 over the ownership of disputed islands northeast of Taiwan. Nationalist crowds ransacked a Toyota Motor Corp dealership and set a Panasonic Corp factory ablaze.
There are plenty of ways that China could bring pressure to bear in that way. The US is the largest investor in China from outside Asia, with about 3 percent of the foreign direct investment stock, worth about US$41 billion in 2016.
As Hyundai has learned to its cost, assets held in China can rapidly lose their value if you are in Beijing’s bad books.
The effects could be felt well beyond the usual suspects. Most US businesses with substantial revenue in China have so far been spared from the country’s retaliatory wrath, but tech companies, such as Apple Inc, Qualcomm Inc and Intel Corp, are directly in the firing line if things heat up.
Boeing Co, General Electric Co and United Technologies Corp, whose Chinese aerospace businesses have so far been largely spared, could also be targeted.
Caterpillar Inc risks getting locked out of the “One Belt, One Road” infrastructure bonanza.
Other firms could be damaged by local action that barely touches on formal goods trade.
Las Vegas Sands Inc, controlled by 2016’s biggest US conservative political donor Sheldon Adelson, does not technically export anything much to China — but if Macau authorities decided to strip away the license for his casinos that is up for renewal in 2022, the company could lose three-fifths of its revenue in a flash.
Only a few thousand of the 4 million cars that General Motors Co sells in China each year are imported from the US, but Hyundai’s experience illustrates that the locally made remainder could nonetheless be hit hard.
Coca-Cola Co has only about 5 percent of its net assets in China thanks to the use of local bottlers owned by China National Cereals, Oils and Foodstuffs Corp (中糧集團) and Swire Pacific Ltd, but would not want to suffer a consumer boycott in the Coke system’s third-biggest market.
Beijing’s most powerful weapon — harming prominent companies to make Trump lose face with the US business community — has barely been touched so far in the conflict.
If the stakes get higher, China has some potent cards up its sleeve.
David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
DECOUPLING? In a sign of deeper US-China technology decoupling, Apple has held initial talks about using Baidu’s generative AI technology in its iPhones, the Wall Street Journal said China has introduced guidelines to phase out US microprocessors from Intel Corp and Advanced Micro Devices Inc (AMD) from government PCs and servers, the Financial Times reported yesterday. The procurement guidance also seeks to sideline Microsoft Corp’s Windows operating system and foreign-made database software in favor of domestic options, the report said. Chinese officials have begun following the guidelines, which were unveiled in December last year, the report said. They order government agencies above the township level to include criteria requiring “safe and reliable” processors and operating systems when making purchases, the newspaper said. The US has been aiming to boost domestic semiconductor
Nvidia Corp earned its US$2.2 trillion market cap by producing artificial intelligence (AI) chips that have become the lifeblood powering the new era of generative AI developers from start-ups to Microsoft Corp, OpenAI and Google parent Alphabet Inc. Almost as important to its hardware is the company’s nearly 20 years’ worth of computer code, which helps make competition with the company nearly impossible. More than 4 million global developers rely on Nvidia’s CUDA software platform to build AI and other apps. Now a coalition of tech companies that includes Qualcomm Inc, Google and Intel Corp plans to loosen Nvidia’s chokehold by going
OPENING ADDRESS: The CEO is to give a speech on the future of high-performance computing and artificial intelligence at the trade show’s opening on June 3, TAITRA said Advanced Micro Devices Inc (AMD) chairperson and chief executive officer Lisa Su (蘇姿丰) is to deliver the opening keynote speech at Computex Taipei this year, the event’s organizer said in a statement yesterday. Su is to give a speech on the future of high-performance computing (HPC) in the artificial intelligence (AI) era to open Computex, one of the world’s largest computer and technology trade events, at 9:30am on June 3, the Taiwan External Trade Development Council (TAITRA) said. Su is to explore how AMD and the company’s strategic technology partners are pushing the limits of AI and HPC, from data centers to
ENERGY IMPACT: The electricity rate hike is expected to add about NT$4 billion to TSMC’s electricity bill a year and cut its annual earnings per share by about NT$0.154 Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) has left its long-term gross margin target unchanged despite the government deciding on Friday to raise electricity rates. One of the heaviest power consuming manufacturers in Taiwan, TSMC said it always respects the government’s energy policy and would continue to operate its fabs by making efforts in energy conservation. The chipmaker said it has left a long-term goal of more than 53 percent in gross margin unchanged. The Ministry of Economic Affairs concluded a power rate evaluation meeting on Friday, announcing electricity tariffs would go up by 11 percent on average to about NT$3.4518 per kilowatt-hour (kWh)