Tech jocks tell Trump: Tariff tiff with China will not achieve what you think it will achieve

Think of the children (and our revenues)! plead Dell, HP, Intel and Microsoft

US tech giants Dell, HP, Intel and Microsoft have submitted a plea to have laptops and tablets excluded from the tariffs imposed by the US government on Chinese imports.

The letter (PDF) comes as the administration of American president Donald Trump continues to ratchet up the stakes in the squabble over alleged trading practices by China.

Trump slapped a 25 per cent tariff on $50bn worth of goods back in June 2018. In September a 10 per cent tariff was applied to another $200bn of goods heading into the US from the People's Republic.

While US businesses may have been a bit irritated by that, May 2019's hike has left jowls positively trembling in rage as a tariff of 25 per cent hit all manner of goods from China, including electronics.

Still, at least a flat 25 per cent makes it easier to calculate the damage instead of having to work out what qualified for that 10 per cent hit. There's always a bright side, right?

As the World Trade Organisation (WTO) ponders whether the tariffs break its rules, the four tech giants have taken it upon themselves to point out the obvious to a seemingly oblivious US administration – the tariffs won't just impact China, they will hit average Americans and American businesses in the pocket.

The doom-laden missive modestly cites IDC figures showing the Dell, HP and Microsoft account for 52 per cent of notebooks and detachable tablets sold in the US, with Intel providing much of the silicon therein.

The gang employs nearly 200,000 workers in the US and spanked $35bn on R&D in 2018.

Hoping to rattle a few nerves, the letter spells out the potential impact to consumers – wafer-thin margins mean there is little fat to absorb the proposed 25 per cent hike, and the companies reckon consumers will face an increase in price of "at least 19 per cent".

That said, Intel's prolonged CPU shortages had led PC makers to shift their product mix to higher margin machines. And of course Intel - with its relatively hefty margins - maybe hasn't got grounds to complain.

While unfortunate for customers, the unspoken message is that this would be disastrous for the flagging sector. Worldwide, Dell, for example, reported a drop of 10 per cent in consumer revenue. US customers keeping their credit cards in their wallets will do nothing to arrest the decline.

Amid the hand-wringing, the gang also warned of the fate of the 30 million or so small and medium-sized businesses who would face the same hikes in cost, and so be forced to prolong the life of outdated gear. How will they make the move to Windows 10 if they can't afford the new hardware on which to run it?

"Reliance upon older devices," wail the four tech giants, is "potentially putting their security at risk".

Alternatively, Microsoft could just postpone plans to kill off Windows 7 if it is that concerned about security on old laptops. Just saying.

HP, Dell and Microsoft are currently at positions 1, 2 and 5 of US vendors respectively. Apple has not taken part and it might be a tad awkward for Lenovo to get involved, being a China-based outfit after all (although one that makes some gear outside of the Middle Kingdom).

The point being made is, however, a serious one. The pain from the tariffs will be visited upon Americans as well as the Chinese and a wholesale shift of production and sourcing to avoid them is something that will take a while for vendors to achieve.

Chinese manufacturing giant Foxconn, supplier of kit to the likes of Apple, has said it has the capacity to move production out of China if needed and, as we reported previously, countries such as Vietnam, the Philippines and India stand to benefit should American companies press the big red button.

Slapping tariffs on goods from China, the four contend, will simply divert trade to other countries, "taking valuable market share away from US manufacturers". And with HP, Dell, and Apple deriving 30, 32, and 43 per cent, respectively, of their global laptop revenues from the US, that would be quite the hole blown in the balance sheet. ®

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