An additional 10 percent tariff imposed on US$300 billion of Chinese goods would affect the consumer-driven tech sector in the second half of this year, analysts said on Friday.
While makers of consumer-driven products — including original design manufacturing (ODM) companies and electronics manufacturing service (EMS) providers — are likely to pass tariffs on to their clients, higher levies would still result in an increase in pricing and thus negatively affect overall end-market demand, analysts said.
US President Donald Trump on Thursday last week tweeted a plan to impose 10 percent tariffs on an additional US$300 billion of imports from China beginning on Sept. 1, affecting products such as notebook computers, tablets and smartphones.
This followed a move in May to increase tariffs on US$200 billion of Chinese goods to 25 percent from 10 percent, affecting electronics, machinery, automobiles, bicycles, petrochemicals, steel, machine tools, hand tools, plastics, and screws and nuts.
Trade-sensitive sectors face a difficult time. PC ODMs, in particular, are expected to suffer the most because the additional tariffs apply to consumer electronics goods that had been spared in earlier rounds of levies and also because they have higher capacities in China, while about 30 percent of their shipments go to the US.
“We believe smartphone and wearable products will face more difficulties in moving production out of China due to their labor-intensive nature. For notebooks, although it is more automated manufacturing versus smartphones, there is still limited capacity (less than 10 percent) outside of China,” Yuanta Securities Investment Consulting Co (元大投顧) analysts led by Vincent Chen (陳豊丰) said in a report. “We estimate relocation for notebooks will take at least three to five months.”
PC brands, such as Acer Inc (宏碁) and Asustek Computer Inc (華碩), might also suffer, as they outsource to ODM companies whose capacity in China is too big to move in the short term, the analysts said, adding that these brands might be forced to take up the 10 percent tax, inevitably increasing product prices.
In the smartphone business, Hon Hai Precision Industry Co (鴻海) and Wistron Corp (緯創) are building additional capacity in India, but Yuanta analysts said the Indian production would be aimed at the domestic market initially.
If these EMS providers cannot pass the additional costs onto clients, the higher tariffs would lead to higher average selling prices, negatively affecting overall end-market demand, the analysts said.
In addition, as new iPhones would have limited upgrades this year, there would be more downside risk for iPhone shipments in the US market going forward, they said.
As a result, supply chain firms with higher sales exposure to Apple Inc’s iPhone, iPad and MacBook products — including flexible printed circuit board suppliers Flexium Interconnect Inc (台郡) and Zhen Ding Technology Holding Ltd (臻鼎), smartphone camera lens supplier Genius Electronic Optical Co (玉晶光), LCD backlight module maker Radiant Opto-Electronics Corp (瑞儀) and contract electronics manufacturer Pegatron Corp (和碩) — would be affected the most by the additional tariffs, the analysts said.
Another sector that might face increased headwinds is the flat-panel industry, as monitors are on the US$300 billion list, they said.
“The panel industry is highly agglomerated and it is thus difficult to relocate the entire supply chain in a short time. As the overall panel industry is already in an oversupply situation, the new tariffs will cripple demand in the US, thus intensifying pressure on panel makers, which we believe will have a negative impact on Taiwanese panel players,” they said.
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