US tech firms feel pinch from China tariffs

According to a report by BBC News business correspondent Daniel Thomas, nearly 80% of smartphones sold in the US market are made in China. American companies are facing new challenges brought about by the Trump administration's trade policies. This situation highlights the interconnectedness of global supply chains and the potential impact of trade policies.

Dina Ghazarian's company, Austere, located in California, primarily supplies high-end audio and video accessories to major US retailers, with these accessories mainly manufactured in China. In 2019, just a year after the company was founded, it was hit hard by the Trump administration's trade policies. This sudden impact underscored the vulnerability of businesses reliant on international trade.

The Trump administration's tariffs on Chinese goods instantly increased the cost of every cable and component Dina imported by 25%, up from zero previously. She was forced to absorb these additional costs, bringing her to the brink of bankruptcy. Dina stated, "I really thought my business would start and end within a year. I put in so much time, money, and energy, only to be caught off guard by something like this; it was shocking." This experience highlights the real-world consequences of trade policy decisions on small businesses.

Although the company ultimately survived, it now finds itself, like many other American businesses, facing similar difficulties again. After taking office, the Trump administration raised tariffs on all Chinese imports by 20% and imposed 25% tariffs on products from Canada and Mexico, although some tariffs are delayed until April. Trump stated that he hopes to force these countries to take more measures to stop the inflow of illegal drugs and immigrants into the United States, bring more manufacturing back to the United States, and address what he considers unfair trade imbalances. These measures aim to reshape international trade relationships and boost domestic production.

Unlike the last time, when tariffs were gradually implemented and many products were granted exemptions, this time the scope of tariffs is much broader. For the first time, goods such as smartphones, desktop computers, and tablets are subject to tariffs, while tariffs on other goods are further increased. Ed Brzytwa, vice president of international trade at the US Consumer Technology Association (CTA), stated, "US importers have to pay these taxes, not exporters. Ultimately, American businesses and consumers will suffer." This shift in policy could have significant repercussions for the technology industry and consumer spending.

Businesses like Ghazarian's company are particularly vulnerable. China remains the largest supplier of electronics to the United States, with total imports of $146 billion in 2023. CTA data shows that in that year, 87% of US video game console imports, 78% of smartphone imports, 79% of laptop and tablet imports, and two-thirds of monitors came from China. These figures demonstrate the deep reliance of the US on Chinese electronics manufacturing.

Since the Trump administration's first term, many American companies, such as Austere, have diversified their supply chains, reducing their dependence on China. However, countries such as Thailand, Taiwan, and Vietnam still cannot provide the same manufacturing capabilities and expertise. At the same time, the Trump administration is now targeting Mexico—another major supplier of electronics. Although domestic manufacturing in the United States has increased, partly due to tariffs, it is still constrained by higher costs and stricter regulations. This suggests that complete decoupling from China is a complex and challenging endeavor.

Mary Lovely, a senior fellow at the Peterson Institute for International Economics, stated, "That's right, Apple is now producing some iPhones in India, and TSMC has also diversified in Arizona. But China is still an important part of the supply chain. Establishing relationships with new suppliers takes time and is costly." This highlights the difficulties and expenses associated with shifting supply chains away from established manufacturing hubs.

Research shows that companies pass on a significant portion of tariff costs to prices. Corie Barry, head of US electronics retailer Best Buy, said that because industry suppliers have very low profit margins, the vast majority of new tariffs "will likely be passed on to consumers." Taiwan's Acer said that based on the then-imposed 10% tariff on China, the price of its laptops could rise by 10%, while US-based HP warned that its profits would decline due to tariffs. These statements illustrate the potential impact of tariffs on consumer prices and corporate profitability.

Ghazarian said she may have to raise prices this year but fears it will backfire. "Customers have a satisfactory price point for the value of the goods offered. Once I'm above that price point, I'll start losing customers. High inflation has already squeezed Americans' purchasing power." This reflects the delicate balance businesses must strike between maintaining profitability and remaining competitive in the market.

During the Trump administration's first term, companies like Apple successfully obtained product exemptions, and we may see similar exceptions again. Insiders say Trump sees tariffs as a negotiating tactic and may relax them if he wins concessions, as he did in 2020 when he reached an agreement with China in which China agreed to buy more US goods. Concerns about a slowdown in the US economy may also prompt him to change his strategy. This suggests that the future of tariffs is uncertain and dependent on political and economic factors.

But for now, tensions are likely to escalate. China, Mexico, and Canada have vowed to retaliate against any tariffs imposed by the United States. Trump also plans to impose "reciprocal tariffs" on the rest of the world and threatened during his campaign to raise tariffs on Chinese goods to 60%. If China is forced to move manufacturing to countries with higher labor costs, this could drive up the price of global technology products. In addition, countries may impose tariffs on imported US technology products. These potential retaliatory measures could lead to a global trade war and further economic disruptions.

Ghazarian said she is worried, but at least this time she is prepared. Like many other American business owners, she ordered a large amount of extra inventory before Trump took office and stored it in her warehouse on the US East Coast. She hopes this will help the company get through the next year until it can "transform" again. "This may mean finding a more cost-effective way to produce products, or doing something completely different. It's frustrating that I have to focus on survival instead of growing my business." This highlights the resilience and adaptability required for businesses to navigate uncertain trade environments.