List 4 Tariffs Would Do More Harm to Tech Sector Than Current 25% Duties, Says S&P
Even at only 10 percent, the List 4 Section 301 tariffs due to take effect Sept. 1 on up to $300 billion worth of Chinese imports (see 1908010059) “would have a much larger impact on the U.S. tech sector” than the previous three rounds of 25 percent duties, said an S&P Global Ratings report Monday. The List 4 tariffs would “significantly raise costs for manufacturers and prices for consumers,” much more than current tariffs, it said.
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List 4 also would encompass “a broader scope of major tech products” that are a higher proportion of overall U.S. IT spending, said S&P. List 4 also includes “more finished goods, which are more expensive than intermediate goods and therefore subject to higher tariffs,” it said.
The impact from the existing tariffs “has so far been relatively muted for U.S. tech companies,” which have been able to “reallocate certain manufacturing activities to where there are existing facilities and skilled labor,” said S&P. Hard disk vendors Seagate and Western Digital shifted some of their China-based manufacturing “to their existing facilities in Thailand and other countries,” it said. Others “have been able to pass along the higher costs to customers without significantly affecting demand,” it said.
S&P thinks many tech companies “have already planned to invest in new manufacturing facilities in Southeast Asia, Mexico, and other regions to offset any business concerns as a result of rising U.S.-China trade tensions,” it said. But “we expect their ability to use the same playbook to mitigate the higher costs” of the List 4 tariffs “will be more difficult over the near term,” it said. “Complex” supply chains are “well established” in China, “with parts and components suppliers concentrated there and skilled labor trained over many years,” it said.
President Donald Trump’s Aug. 1 tweet announcing the imposition of List 4 “will weaken global business confidence," said S&P. It also could "compound decelerating U.S. and global investment growth and economic prospects if it goes into effect on Sept. 1,” it said. It also “appears” that U.S.-China trade tensions will continue and even worsen, it said.
“We have seen pockets of weakness in global IT spending so far in 2019,” said S&P. “We also now expect overall IT spending growth to lag that of global GDP [gross domestic product] growth versus our prior expectation in November 2018 for IT spending near global GDP.” Though S&P hasn’t made any rating changes to U.S. tech companies arising from the latest U.S-China trade tensions, “we recognize that any escalation will undoubtedly add to global economic uncertainty and further increase downside risk to the tech sector,” it said.