Battle for the Bytes.
Terry Gou, the chairman of Apple Inc. (AAPL - Get Report) assembler Foxconn and a key business ally to President Donald Trump, has called the U.S.-China trade dispute a "tech war" and the biggest challenge to the world's largest electronics manufacturer.
Gou, who recently spearheaded the creation of a Foxconn assembly facility in Wisconsin that will create as many as 13,000 new jobs, also told investors at the company's annual general meeting in Taiwan that "structural changes" in China's economy, as well as the pace of inflation and subsequent interest rate increases from global central banks, were key near-term concerns for one of the world's most important tech companies.
"The biggest challenge we're facing is the U.S.-China trade war (but) what they are fighting is not really a trade war, it's a tech war. A tech war is also a manufacturing war," Gou said. "In terms of how we manage and adapt, this is something all our high-level managers are making various plans on."
Gou's comments suggest companies in the global tech supply chain are starting to prepare for disruptions linked to the ongoing trade war rhetoric between Washington and Beijing, particularly with respect to U.S. accusations of intellectual property theft by Chinese companies and the recent clampdown on state-controlled ZTE Corp.
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President Trump has vowed to impose fresh tariffs on $450 billion in China-made goods coming in to the U.S. if Beijing retaliates to an initial list of $50 billion in levies that kicks-in on July 6. China has said it will indeed hit back, and promised to use both "qualitative and quantitative" measures in response.
China imports around $130 billion of American-made goods each year, meaning any attempt to match Trump's new tariff plan would quickly run out of products to target, leaving Beijing with a broader option of changing industrial policy -- or even erecting higher barriers to entry -- in the world's second-largest economy.
"In confronting China, we must have a clear understanding about the consequences of our actions and where there will be costs to ourselves," Samm Sacks of the Centre for Strategic & International Studies told U.S. lawmakers earlier this week. "The challenge is that the US's and Chinese technology developments, supply chains, commercial markets are tightly intertwined."
U.S. tech companies, including Action Alerts Plus holding Apple, which sold more iPhones in China than it has in the US for the past three years and generated 20% of its nearly $200 billion in annual revenues there, have important links to both mainland China and Taiwan. Foxconn, on the flipside, relies on its Apple contract -- the last of which was reportedly worth $7.5 billion -- for more than half its revenues.
China's insertion into the global tech supply chain wasn't an accident, according to a study from the U.S.-China Economic and Security Review Commission published earlier this year,
The Chinese government considers the ICT sector a "strategic sector" in which it has invested significant state capital and influence on behalf of state-owned (information and communications technology enterprises).
The study found that seven major American tech companies -- Hewlett Packard (HP - Get Report) , IBM (IBM - Get Report) , Dell Inc (DELL) , Cisco Systems Inc. (CSCO - Get Report) , Unisys Corp (UIS - Get Report) , Microsoft Corp (MSFT - Get Report) and Intel Inc (INTC - Get Report) -- source more than half of their products and components from China.
"The U.S. government needs a national strategy for supply chain risk management of commercial supply chain vulnerabilities in U.S. federal information and communications technology, including procurement linked to China," the report said. "This strategy must include supporting policies so that U.S. security posture is forward-leaning, rather than reactive and based on responding to vulnerabilities, breaches, and other incidents after they have already damaged U.S. national security, economic competitiveness, or the privacy of U.S. citizens."