Over the last twenty years, a large number of US companies have shifted production to China, with an eye on the huge bulk of the Chinese middle-class market. They have been making gigantic profits. Perhaps the US trade authorities overlooked this fact- when they decided to put a trade tariff and even ban on $200 billion of Chinese imports into the US
If China were to retaliate in the same vein, the big losers will be big technology companies that have set up manufacturing units and marketing and sales activities on Chinese soil, raking in big bucks. Leading this troupe will be Apple. It could face the same problem in China as Huawei faced in the US. And that will not be a pretty sight, given that China represents 19 percent of Apple’s worldwide sales. Experts across the world are viewing the aggressive stand US has taken against China as a naked bid to stop its growth. This is clearly an attempt to short circuit a competitor before it becomes too big to fight, in almost all fields- mobile devices to networking and now, more so for 5G. in the guise of unclear security steps, US is trying to curtail China’s trade activities across all its ally nations – something that China isn’t taking very kindly to.
Till now, the flow is about protesting the bans, trying to reason, but the Asian tiger could well take an aggressive path against the US too. That will also be a pressure point and could hurt many sectors in US industry, especially of technology. While increasing tariffs, delaying clearances and creating more roadblocks for US companies trade processes in China is one way that would not be the deadliest strokes. China needs to look no further than curtailing Apple’s activities- that is where the US’s softest spot sits in the country. Beijing could certainly attack the heart of Apple’s supply chain-centered in and around Shenzhen, and heavily dependent on the manufacturer Foxconn. Disruption of this chain would be much worse than putting the pressure on Apple in the domestic Chinese market
iPhone is the bulk of Apple’s business in China, and till last year, was growing at a good pace. But since last year, the sales are slowing down, and especially so in the wake of US aggression. Chinese could be driven to patriotism that the US may not even have taken into calculation. That would be the biggest mistake the US administration under president Trump would have made. So, clear indications of the slowdown- till the beginning of 2018, Apple’s China sales had a 10% share of its worldwide sales, now that is about 7%. Shipments of all smartphones to China are declining, and the market for only one is growing – Huawei. With the tariff war heating up, there is an expected wave in China that could roughly translate to- ‘Buy Chinese boycott Apple’.
The social media in China, which is heavily regulated, is under complete control of Xi Jinping’s government and can fan these flames, fighting with ethics and the issue of trade bully, even challenging China’s pride. If the witch-hunt gets specific, Apple will be in the direct line of fire. The list of potential reprisals is long. Constraints on Apple’s retail stores or mandating Apple to use Chinese components such as chipsets could be done. In a stronger backlash, the government could make it harder for Apple products customers in Chinese to access the App Store. There is already precedence- where many countries ranging from Saudi Arabia to Russia have successfully revoked licenses or placed restrictions and created conditions that make it almost impossible for certain businesses to function in their geography. China could certainly do the same.
However, there could be something much more drastic and direct- an outright ban the sale of iPhones in China, on the same grounds that the US is using against Huawei: national security and data security. The Chinese could simply say that the presence of foreign hardware and security-protected operating systems violate its laws about data security and its right to access citizen data.
Interestingly, Ren Zhengfei, the founder and CEO of Huawei, has explicitly opposed attempts in China to boycott or curtail Apple, good-heartedly insisting that harming Apple would harm the mobility industry. But the Chinese government may not be so large-hearted.
Apple’s vulnerability in China is only one example of the inadvertent consequences of this fast-growing trade conflict. Apple is being discussed because it is the best-known brand among the hundreds of US companies selling hundreds of billions of goods to Chinese consumers-Nike, Starbucks, KFC, Ralph Lauren, Boeing, GM, to name a few. While China has not yet started to exert any counter pressure on the US, it will be unwise to assume it never will.
It is pertinent to understand that bravado that assumes that China has everything to lose while the US is completely safe in this trade war- is a fallacy. The best or worst is yet to come!