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U.S. consumers are mostly optimistic about economic conditions, though statistics show more Republicans than Democrats feel that way, a split due to partisan assessments of Trump’s economic leadership. Still, more than half of us fear that we won’t have enough money for the future.
This mix of hope and fear contrasts with growing concerns among US businesses affected by the Trump administration’s trade tariffs with China. The stock market has had a bad couple of weeks since Trump announced an additional tariff of 25 percent on goods from China.
According to a recent Reuters report, corporate anxiety comes from many sectors affected by the trade dispute with China: farming continues to suffer from the 77 percent decline in exports to China; the technology sector reports losses of $1.3 billion a month, while automakers and steel and aluminum buyers have lost billions.
As the report notes, a fundamental source of economic fear has been the disruption of global supply chains. When supply chains are stable, businesses can plan for the future with relative confidence. Existing supply chains can only be disrupted by two forces: natural disasters, as in the 2011 Japanese earthquake and tsunami, and geopolitics, as in Trump’s trade war.
The geopolitical effect of American tariffs has caused major consumer electronics brands to draw up plans to reconfigure existing supply chains. Apple said it could withstand the current 10 percent tariffs that have been imposed on goods from China. A clear sign of this is the company’s plan to move assembly of the Mac Pro desktop from Texas to China. But if Trump’s new round of tariffs is implemented, the company is ready to move some of its business to other low wage countries. Vietnam is a likely destination.
Reconfiguration of the supply chain of global parts suppliers and manufacturers will not be easy or cheap and may take years to complete. For most U.S. tech brands and consumer goods retailers to make such changes on a worldwide scale, the U.S. government’s geopolitical gambit would have to be clear and lasting.
For its part, China has highlighted its importance in global supply chains by suggesting that its dominant position as a supplier of refined products made from rare earth metals gives it geopolitical leverage in international disputes—in 2010 it stopped supplies to Japan after the latter detained a Chinese fishing trawler in a territorial dispute. Ten years ago, the Chinese government pressured manufacturers of products needing rare earth metals to move factories to China if they wanted reliable access to supplies. That move is the reason U.S. automakers and the aerospace industry import key electronic systems from China today.
Rare earth ores are sourced beyond China as well, but China is virtually alone in building up its refineries, which are notorious sources of environmental despoliation, mainly toxic chemical pollution of air, water, and soil in the Southeast region of the country.
The example of rare earth metals shows how complex one the existing global tech supply chain is. As The New York Times put it: “Thanks to circuitous global supply chains, really blocking American access to rare-earth products could mean cutting off much of the rest of the world as well. Factories in South Korea and Thailand produce large quantities of lanthanum-based catalysts. Three Japanese companies dominate the business of turning rare earth ores into magnets. The three — Hitachi, TDK and the Shin-Etsu Group — have built large magnet factories in China but have kept their factories open in Japan as a precaution.”
Another especially important hub in the current global supply chain is Taiwan. Its centrality is based on the deep dependency that the biggest tech brands have developed on Taiwanese contract manufacturers, who assemble the bulk of the world’s smartphones and other devices we’ve come to love. Hon Hai (better known as Foxconn), Largan, Wistron, Pegatron, Quanta, and TSMC are the main players. TSMC’s specialized microprocessors are the heart of iPhone and Huawei devices. Largan grinds the lenses used in high-end phone cameras. Pegatron and Quanta produce cheap low-end devices. And Foxconn runs the mega factories in China with the capacity and logistical know-how to hire “armies of workers” on-demand to scale up production for new iPhones and gadgets.
In turn, these Taiwanese companies have anchored much of their production in the Chinese factory zone in Shenzhen in southern China, which has led to their own dependency on a highly developed cluster of industries and expertise in that region. A deepening geopolitical conflict would seriously disrupt this arrangement, pressing them to relocate factories and suppliers, which would be costly and take years to settle into the equivalent patterns of existing relationships. Pegatron is looking to site a factory in Indonesia, while Foxconn and Wistron have already built factories in India to assemble iPhones. Samsung is now making most of its smartphones in Vietnam.
High-end chips, also known as leading-edge chips, are a key component in all digital devices. A leading-edge chip could start its life at a silicon dioxide mine in the US, be turned into pure ingots of silicon in Japan, sliced into wafers, and end up in a chip factory in Taiwan or South Korea where they’re printed with advanced Dutch photolithography equipment. What makes the leading-edge chip supply chain so vulnerable to geopolitical threats is the concentration in this sector: there are currently only five companies producing leading-edge chips, down from 29 in 2001.
The Economist summed up the trade tensions in suggestive Cold War terms: “Many companies feel they can no longer rely on Chinese suppliers. And the Chinese realize that America can use the supply chain to wage economic war. Hawks in Washington and Beijing may dream of two ‘techno-spheres’ of influence. To globalized technology firms, it feels like a nightmare.”
In the event of a bipolar world of techno-influence, the U.S. sphere will have a big problem keeping prices down, unless a very big list of exemptions is made for “friendly country” industries—Japan’s and South Korea’s firms, for example, or building out new plants in South East Asia and India. But it’s hard not to see Chinese influence in such a scenario. In the short term, as the global supply chain begins to shift and resettle, it’s probably safe to say that ordinary consumers will pay more for the technology they love. But there are more important questions.
Finally, changes in the supply chain will mean changes to the international division of labor, with new forms of power over the organization of labor and the deployment of technologies. It will also mean new sets of environmental issues, both in territories newly involved in a techno-sphere of influence and within places where old hub and spoke industrial relationships will be renewed.
Consumer confidence is a key element in national economies. That confidence is itself part of a complex chain that involves politics, diplomacy, media coverage, labor relations, investment decisions, and environmental impact, among other things. To help ensure our confidence—or lack thereof—is well-founded, we need citizen information and empowerment to push politicians and corporations to act in the public interest.
