Original Analysis on Current Events

FAO Global conducts analysis on hundreds of significant events a week that impact the business environment between the U.S., China, and emerging economies in Asia. While most of these assessments are for client and internal use we like to share events that may have been overlooked if you only follow the major media outlets. We send these assessments out via our newsletter.

Highlights you may have missed for the week of June 24-28, 2019.

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The Trade War Is Exposing What Little U.S. Tech China Still Needs – Bloomberg 

Our Take: The Chinese tech supply chain requires crucial components that are predominantly made in the U.S. However, if trade is restricted, Chinese firms will likely source Chinese or other foreign components. Although Chinese firms are behind the U.S. in certain sectors, this will drive R&D due to increased demand, which further increases the chance that Chinese technology will catch up to the U.S.  In semi-conductors, it has been assessed that China is roughly 20 years behind, but that could change quickly should a more dire need become clear. U.S. companies that are impacted by China’s restricted supply Chain should request tariff waivers from the U.S. government but look to new sectors to diversify risk should the market and geopolitics shift. 

Analysis Contributed by Brandon Hughes, FAO Global Consultant 

ZTE secures more than 25 commercial 5G network contracts as it steps up turnaround efforts – South China Morning Post 

Our Analysis: With limited options for 5G capable technology, the U.S. is competing against a Chinese ecosystem that is poised to overtake U.S. capacity in terms of size and scope. If Chinese 5G becomes the dominant provider of 5G, it’s likely that regional neighbors will adopt Chinese technology over U.S. made. This poses the potential to hurt U.S. competitiveness but creates opportunities for U.S. companies to supply Chinese providers with parts and supplies. The signing of the 25 contracts is only the beginning and we should expect Chinese tech giants ZTE and Huawei to dominate this field for the time being. 

Analysis Contributed by Brandon Hughes, FAO Global Consultant 

Apple warns Trump that more China tariffs will help rivals – BBC 

Our Take: On June 21st, Apple urged the Trump administration to drop a plan for more U.S. tariffs on $300bn (£236.1bn) worth of Chinese products. The increase of tariffs would hurt the global competitiveness for U.S. companies as the Chinese competitors, including top smartphone maker Huawei, do not have a significant presence in the U.S. market and would not be impacted by U.S. duties. As such, for tech supply chains in the U.S., this is a sign of the potential growth of cost (maximum 25% rate) for selling products or producing products overseas, especially in China. In order to reduce the production cost brought by the policy change, tech companies that consider managing the risk should engage with other like-minded tech industries and push for the administration to prevent the increasing cost. 

Analysis Contributed by Jennifer Hsu, FAO Global Associate 

Chinese and British car industries commit to major partnership – China Daily 

Our take: China represents the world’s biggest automotive market, and its partnership with Britain car industries, the fourth biggest European auto manufacturer, is believed to generate more cross-border business activities. FAO Global predicts this partnership between China and the United Kingdom will also impact exports to China and may create synergies for emission technology, supply-chain, and increased joint ventures. British companies have long held a foothold in China but given the recent U.S.-China trade disputes and the uncertainty over Brexit, this agreement will provide confidence for those invested in the British car industry. FAO Global still expects to see more investments in China and Britain that will lead to innovations and an increased market share for British vehicles in China. This may also pave the way for Chinese cars to enter the British market in the future. 

Analysis Contributed by Sophia Song, FAO Global Associate

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Edits by Kelli Sullivan

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