American businesses in China: Tariffs are hurting us


Published Tue, May 21 2019 • 8:16 PM EDT

Evelyn Cheng@chengevelyn

Key Points

  • Nearly three-fourths, or 74.9%, of almost 250 respondents to a survey held from May 16 to May 20 said the increases in U.S. and Chinese tariffs are having a negative impact on their business, according to a report released Wednesday by AmCham Shanghai and AmCham China in Beijing.
  • About one in five said they have experienced increased inspections and slower customs clearance.
  • The greatest impact of the combined tariffs is decreased demand for products, followed by increased manufacturing costs, according to the joint AmCham survey.

U.S. President Donald Trump’s latest tariff increase — and Beijing’s plans to counter them — are hitting U.S. companies in China.

Nearly three-fourths, or 74.9%, of almost 250 respondents to a survey held from May 16 to May 20 said the increases in American and Chinese tariffs are having a negative impact on their business, according to a report released Wednesday by the American Chamber of Commerce in Shanghai and the Beijing-based American Chamber of Commerce in China.

“The negative impact of tariffs is clear and hurting the competitiveness of American companies in China,” a release from the groups said.

The Chinese authorities also appear to be making operations more difficult for some companies.

About one in five said they have experienced increased inspections and slower customs clearance. Roughly 14% of respondents said approval for licenses or other application has been slower — in addition to other complications from increased bureaucratic oversight or regulatory scrutiny.

Of the survey participants, 61.6% were manufacturing-related, 25.5% were in the services sector, 3.8% were in retail and distribution and 9.6% came from other industries.

The trade dispute between the world’s two largest economies had appeared to be nearing a deal — until those hopes were dashed earlier this month.

The U.S. raised tariffs on $200 billion worth of Chinese goods to 25% from 10% on May 10. Beijing responded a few days later with duties ranging from 5% to 25% on $60 billion worth of U.S. goods, set to take effect June 1.

The greatest impact of the combined tariffs is decreased demand for products, followed by increased manufacturing costs, according to the joint AmCham survey. About 35% of respondents are restructuring their China operations to reach the local market by increasing domestic sourcing or production, and roughly a third said they are delaying or canceling investment decisions in the country.

Just 10% said they planned to apply for an exclusion from Chinese tariffs, while 15.1% indicated they would apply for exemptions from U.S. tariffs, the report said. The majority were either unsure or said they would not apply.

Source: CNBC “American businesses in China: Tariffs are hurting us”

Note: This is CNBC’s report I post here for readers’ information. It does not mean that I agree or disagree with the report’ views.

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U.S.-China trade dispute could last ‘not just over months or years, but even decades’


Brooke DiPalma
Associate Producer

Yahoo Finance May 22, 2019

“It’s a long-term issue where we and Chinese are going to have to figure out how to deal with one another not just over months or years, but even decades,” said Christopher Smart, head of Barings Investment Institute, on Yahoo Finance’s YFi AM.

American presidents’ efforts to address the rise of China is nothing new. Smart said Bill Clinton may be credited as the first president to lead the charge. In 1998, Clinton historically met with then Chinese President Jiang Zemin, but Smart deems President Trump’s “tactics” are different this time around.

After both Trump and Xi Jingping reached a temporary truce in December to hold off on tariff hikes for 90 days, the deadline extended to March 1, 2019. In the time between, delegates from both U.S. and China officials met in Beijing to identify key areas including protection of intellectual property and other technology related to national security issues. After no deal was reached, Trump took action.

This month Trump increased tariffs on $200 billion of Chinese goods from 10% to 25%, leading China to respond with plans to raise tariffs on $60 billion of U.S. goods starting June 1.

The administration’s latest escalation in its battle against Huawei – adding the company to a trade blacklist – was “a significant expansion of the friction we’ve had between the U.S. and China, and markets are saying this is complicating the relationship significantly,” Smart said.

‘There will be an impact on American households’

Americans could soon see a direct impact from the ongoing trade war. The second round of tariffs applied to Chinese imports are increasingly going to hit consumer goods, said Smart, who served as a senior economic policy official at the U.S. Treasury and White House. “There will be an impact on American households,” he said. And on U.S. companies as well, as was the case with several chip makers that stopped supplying Huawei with components amid the latest U.S. crackdown against the Chinese telecom giant – shares of suppliers dropped Monday.

“We’re not doing them any favors and they’re not doing us any favors,” Smart said. “The commerce is usually because of some bilateral benefit, but when you interrupt that, there is bilateral harm.”

Source: finance.yahoo.com “U.S.-China trade dispute could last ‘not just over months or years, but even decades’”

Note: This is finance.yahoo.com’s report I post here for readers’ information. It does not mean that I agree or disagree with the report’ views.


‘There will be conflict’: US has underestimated Huawei, says founder


Ren Zhengfei says firm is fully prepared to face US bans and that 5G plans will be unaffected

Lily Kuo in Beijing and agencies

Tue 21 May 2019 04.29 BST Last modified on Tue 21 May 2019 19.55 BST

The founder of Huawei has said the US “underestimates” the Chinese telecom makers’s strength and that conflict with the US is inevitable in the quest to “stand on top of the world”.

Ren Zhengfei said his company was fully prepared to face US bans on key components following new trade restrictions caused by Donald Trump’s declaration of a national economic emergency last week

“The current practice of US politicians underestimates our strength,” Ren told Chinese media on Tuesday. “Huawei’s 5G will absolutely not be affected. In terms of 5G technologies, others won’t be able to catch up with Huawei in two or three years. We have sacrificed ourselves and our families for our ideal, to stand on top of the world. To reach this ideal, sooner or later there will be conflict with the US.”

Huawei, the world’s largest telecommunications equipment maker, has become a focal point in a protracted trade war with the US. The US has been working to thwart the company’s global 5G ambitions, which it sees as a national security threat to other nations.

US officials added the company to a trade blacklist on Thursday, after Trump issued an executive order to ban the technology and services of “foreign adversaries”.

It has resulted in new restrictions that will make it extremely difficult for the company to do business with US companies. Google confirmed on Monday it was restricting Huawei’s access to the Android operating system on which the Chinese company’s mobile devices depend.

Reuters reported on Sunday that Google had suspended all business with Huawei that required the transfer of hardware, software and technical services, except those publicly available.

Ren’s defiant tone was in contrast to his company’s restrained statement on Monday following reports that Google had pulled the company’s access to Android updates for its phones and tablets. It promised to continue providing security updates and other after-sales services for Huawei devices using Android.

On Monday, the US temporarily eased some of the restrictions, a sign of how the prohibitions on Huawei may have far-reaching and unintended consequences for the telecommunications sector at large.

For the next 90 days, the US Department of Commerce will allow Huawei to purchase US-made goods in order to maintain existing networks and provide software updates to existing Huawei handsets.

“It appears the intention is to limit unintended impacts on third parties who use Huawei equipment or systems,” said the Washington lawyer Kevin Wolf, a former commerce department official. “It seems they’re trying to prevent network blackouts.”

Ren dismissed the gesture from the department, saying on Tuesday: “The US 90-day temporary licence does not have much impact on us. We are ready.”

Half of chips used in Huawei equipment come from the US and the other half are made by the Chinese company, according to Ren. “We cannot be isolated from the world,” he said. “We can also make the same chips as the US chips, but it doesn’t mean we won’t buy them.”

The Chinese company’s top executive in the UK, Jeremy Thompson, said the US move against Huawei was a “cynically timed” blow in the escalating trade war. “The timing of this is to inflict maximum hurt on our organisation. We’re a football in between this trade war,” he told the BBC.

The Huawei confrontation has been building for years, as the company has raced to establish an advantage over rivals in next-generation 5G mobile technology.

The US intelligence services believe Huawei is backed by the Chinese military and that its equipment could provide Beijing with a backdoor into the communications networks of rival countries. Chinese law requires companies to cooperate with the government on national security issues. As a result, Washington has pushed its closest allies to reject Huawei technology.

The battle over Huawei has added to tensions in a trade war that has escalated between the world’s top two economies, with both sides exchanging steep increases in tariffs as negotiations have faltered.

Asked how long Huawei might face difficulties, Ren said: “You may need to ask Trump about this question, not me.”

Agence France-Presse contributed to this report

Source: The Guardian “’There will be conflict’: US has underestimated Huawei, says founder”

Note: This is The Guardian’s report I post here for readers’ information. It does not mean that I agree or disagree with the report’ views.


U.S. eases restrictions on Huawei; founder says U.S. underestimates Chinese firm


Karen Freifeld, David Shepardson May 21, 2019

(Reuters) – The U.S. government has temporarily eased trade restrictions imposed last week on China’s Huawei, a move aimed at minimizing disruption for its customers but dismissed by its founder who said the tech firm had prepared for U.S. action.

The U.S. Commerce Department will allow Huawei Technologies Co Ltd to purchase American-made goods in order to maintain existing networks and provide software updates to existing Huawei handsets.

The world’s largest telecommunications equipment maker is still prohibited from buying American parts and components to manufacture new products without license approvals that likely will be denied.

The U.S. government said it imposed the restrictions because of Huawei’s involvement in activities contrary to national security or foreign policy interests.

The new authorization is intended to give telecommunications operators that rely on Huawei equipment time to make other arrangements, U.S. Secretary of Commerce Wilbur Ross said in a statement on Monday.

“In short, this license will allow operations to continue for existing Huawei mobile phone users and rural broadband networks,” Ross added.

The license, which is in effect until Aug. 19, suggests changes to Huawei’s supply chain may have immediate, far-reaching and unintended consequences for its customers.

“The goal seems to be to prevent internet, computer and cell phone systems from crashing,” said Washington lawyer Kevin Wolf, a former Commerce Department official. “This is not a capitulation. This is housekeeping.”

Huawei founder Ren Zhengfei on Tuesday said the temporary reprieve move bore little meaning for the company as it had been making preparations for such a scenario.

“The U.S. government’s actions at the moment underestimate our capabilities,” Ren said in an interview with CCTV, according to a transcript published by the Chinese state broadcaster.

He said Huawei was at odds with the U.S. government, not U.S. firms, and that Huawei is capable of making the chips it buys from the United States though that does not mean it will stop buying American chips.

The U.S. Commerce Department said it will evaluate whether to extend the exemptions beyond 90 days.

On Thursday, the Commerce Department added Huawei and 68 entities to an export blacklist that makes it nearly impossible for the Chinese company to purchase goods made in the United States.

The government tied Huawei’s addition to the “entity list” to a pending case accusing the company of engaging in bank fraud to obtain embargoed U.S. goods and services in Iran and move money out of the country via the international banking system. Huawei has pleaded not guilty.

Reuters reported Friday that the department was considering a temporary easing, citing a government spokeswoman.

The temporary license also allows disclosures of security vulnerabilities and for Huawei to engage in the development of standards for future 5G networks.

Reuters reported Sunday that Alphabet Inc’s Google suspended business with Huawei that requires the transfer of hardware, software and technical services except those publicly available via open source licensing, citing a source familiar with the matter.
Google did not immediately respond to a request for comment on the new authorization.

Out of $70 billion Huawei spent buying components in 2018, some $11 billion went to U.S. firms including Qualcomm Inc, Intel Corp and Micron Technology Inc.

“I think this is a reality check,” said Washington trade lawyer Douglas Jacobson. “It shows how pervasive Huawei goods and technology are around the globe and if the U.S. imposes restrictions, that has impacts.”

Jacobson said the effort to keep existing networks operating appeared aimed at telecom providers in Europe and other countries where Huawei equipment is pervasive.

The move also could assist mobile service providers in thinly populated areas of the United States, such as Wyoming and eastern Oregon, that purchased network equipment from Huawei in recent years.

John Neuffer, the president of the Semiconductor Industry Association, which represents U.S. chipmakers and designers, said in a statement that the association wants the government to ease the restrictions further.

“We hope to work with the administration to broaden the scope of the license,” he said, so that it advances U.S. security goals but does not undermine the industry’s ability to compete globally and remain technology leaders.

A report on Monday on the potential impact of stringent export controls on technologies found that U.S. firms could lose up to $56.3 billion in export sales over five years.

The report, from the Information Technology & Innovation Foundation, said the missed opportunities threatened as many as 74,000 jobs.

Wolf, the former Commerce official, said the Huawei reprieve was similar to action taken by the department in July to prevent systems from crashing after the U.S. banned China’s ZTE Corp, a smaller Huawei rival, from buying American-made components.

The U.S. trade ban on ZTE wreaked havoc at wireless carriers in Europe and South Asia, sources told Reuters at the time.

The ban on ZTE was lifted July 13 after the company struck an agreement with the Commerce Department that included a $1 billion fine plus $400 million in escrow and replacement of its board of directors and senior management. ZTE, which had ceased major operations as a result of the ban, then resumed business.

Reporting by Karen Freifeld in New York and David Shepardson in Washington; Additional reporting by Diane Bartz in Washington and Angela Moon, Ryan Woo and Lusha Zhang in Beijing, Brenda Goh in Shanghai; Editing by Cynthia Osterman and Christopher Cushing
Source: Reuters “U.S. eases restrictions on Huawei; founder says U.S. underestimates Chinese firm”

Note: This is Reuters’ report I post here for readers’ information. It does not mean that I agree or disagree with the report’ views.


Hard for US to Catch up China in Hypersonic Technology


Space.com says in its report “Startup Hermeus Wants to Build a Hypersonic Jet That Flies at 5 Times the Speed of Sound” on May 19 that Hermeus Corp., a U.S. venture capital firm plans to build a hypersonic plane with the speed of Mach 5. That is really a good civilian attempt to catch up with China in hypersonic technology as US government is catching up too slowly.

The report says, “A year ago, NASA gave the aerospace and defense contractor Lockheed Martin a $241.5 million contract to develop a quiet supersonic plane that could fly by mid-2022. In June 2018, Boeing unveiled its hypersonic plane concept at the Aviation and Aeronautics Forum in Atlanta.”

According to my post “China’s Manned Hypersonic Spaceplanes Much Better than US Unmanned One” on June 22, 2017, US hypersonic projects are nothing compared with China’s. China’s Science and Technology Daily had an interview on March 12, 2016 with Tan Yonghua, head of No. 6 Research Institute under the China Aerospace Science and Technology when he attended NPC (National People’s Congress, China’s parliament) 2016 annual session.

Tan said in the interview that China’s long-term development goal is to develop an aerospace aircraft that can take off and land horizontally.

True enough, Popular Science disclosed later China’s two hypersonic spaceplane projects:

CASIC (the Chinese Aerospace Science and Industry Corporation)’s Teng Yun
DSTO two-stage spaceplane
First stage
TRCC engine
Speed: hypersonic
Altitude: near-space
Payload: 10-15 tons
Manned
For fast, global reconnaissance and strike
Second stage:
Manned or as launch rocket
Send five taikonauts or 2 ton cargo to Chinese space station.
To be delivered by 2030
Funds: $16 billion

CASC (Chinese Aerospace Science and Technology Corporation)’s spaceplane
A true spaceplane that can depart from and reenter orbit on multiple occasions during the same flight, traveling at greater speed compared to a near-space-only hypersonic aircraft such as SR-72.
SSTO (single-stage-to-orbit), a true spaceplane with only one stage
TRRE (The turbo-aided rocket-augmented ram/scramjet engine) paving the way for hypersonic near space planes and single-stage space launchers. The engine is to be developed by Beijing Power Machinery Research Institute to fly in 2025.
Manned for space travel
To fly with people on board by 2030

The fund for the first project alone is $16 billion while that for the second must be even bigger.

Note: Both of them are civilian projects though very useful for Chinese military so that they are not covered by China’s military budget.

In its report “China’s hypersonic military projects include spaceplanes and rail guns” on June 26, 2018, Popular Science describes China’s hypersonic Ling Yun Scramjet. It says:

In May, the National Defense University of Technology (NUDT) showed off the Ling Yun, a Mach 6+, two stage scramjet testbed. NUDT hopes that the Ling Yun’s relative simplicity and reliability will make it a mass-produced platform for refining new hypersonic technologies such as thermal resistant components for communications systems, or for collecting atmospheric data in the near space. The Ling Yun’s ease of production could provide the basis for scramjet cruise missiles used to swarm enemy ships and air defenses.

Hypersonics for the Masses
The Ling Yun first flew in December 2015; it is likely that Chinese military engineers are taking a keen interest in using its scramjet engine for direction weapons applications.

Comment by Chan Kai Yee on space.com’s report, full text of which can be viewed at https://www.space.com/hermeus-hypersonic-jet-project.html.


Why Apple is in significant trouble if Trump keeps attacking China in the trade war


Brian Sozzi
Editor-at-Large
Yahoo Finance May 21, 2019

If President Donald Trump’s trade war with China heats up further, Apple’s already weak stock price could fall through a trap door.

And it would be justified.

Apple’s (AAPL) stock has tanked about 12% over the past month, according to Yahoo Finance data as trade war fears hammer scores of corporate giants overly reliant on China for their business. The tech giant’s stock has plunged below the 50-day, 100-day, and 200-day moving averages — a clear sign that traders think Apple’s financial prospects will soon take a turn for the worst right along with global trade conditions.

“I think Apple is in significant trouble in China. And this explains why they are trying to diversify their Asian footprint,” China expert and author Parag Khanna said on Yahoo Finance The First Trade. “Unless Apple could diversify beyond its dependence on China and Asia, it’s going to be a downhill story for them.”

Apple’s out-sized dependence on China should be obvious to anyone that could read an annual report. The Tim Cook-led tech company relies on hundreds of suppliers in China to produce its iPhone, iPad, Apple Watch, and other tech gadgets. The Apple production model has for years been centered on making products for as cheap as possible mostly in China, and then profiting from big markups on U.S. consumers.

But with an unpredictable president in Trump appearing ready to enact stiffer tariffs on China, Apple will likely be forced to shift portions of its production outside of the country.

That will come at a sizable cost for Apple in two ways. First, production costs will go up as Apple moves to higher cost regions like India. And two, Apple would have to implement price increases on its products to offset its higher costs, which could wallop demand by consumers.

In the meantime, souring relations between the two economic superpowers may dent demand for Apple products in China. Why should the Chinese buy Apple products and digest their associated American stigma when a cheaper alternative from their own country could be had?

Apple sales in China

Keep in mind Apple derived $51 billion in sales from its “Greater China” segment in the fiscal year ended September 29, 2018. The segment represents Apple’s third-biggest region, behind the Americas and Europe.

An argument could be made that Apple’s sales in China have already been hit by nationalism.

“We believe the economic environment in China has been further impacted by rising trade tensions with the United States. As the climate of mounting uncertainty weighed on financial markets, the effects appeared to reach consumers as well, with traffic to our retail stores and our channel partners in China declining as the quarter progressed. And market data has shown that the contraction in Greater China’s smartphone market has been particularly sharp,” Cook wrote in a letter to investors in early January.
Apple’s sales in greater China for the six months ended March 30 plunged 25% to $23.4 billion.

“I pity the chief operating officer of Apple who has to really re-engineer a supply chain,” said Weeden & Co. Global Chief Strategist Michael Purves.

The Apple investor will be in need of some pity, too, if the trade situation gets ratcheted even higher.

Brian Sozzi is an editor-at-large and co-host of ‘The First Trade’ at Yahoo Finance. Follow Brian Sozzi him on Twitter @BrianSozzi

Source: Finance.yahoo.com “Why Apple is in significant trouble if Trump keeps attacking China in the trade war”

Note: This is finance.yahoo.com’s report I post here for readers’ information. It does not mean that I agree or disagree with the report’ views.


US ban won’t derail Huawei’s European 5G rollout


High-ranking European government officials say that Washington’s latest move does not threaten the Chinese telecoms giant

By David P. Goldman

Two high-ranking European government officials told Asia Times in background discussions that a US ban on sales of electronic components to Huawei Technologies wouldn’t stop the Chinese telecom firm from rolling out 5G mobile networks in Europe.

Europe doesn’t really have a choice in the matter, the officials emphasized in background briefings, because the United States doesn’t offer a competing product, and Huawei’s competitors – Ericsson and Nokia – don’t have the capacity or the knowledge to replace the Chinese giant.

The two Scandinavian firms don’t offer serious competition to Huawei, but rather work in close cooperation with the much larger Chinese firm. Huawei’s research and development budget is roughly double that of Ericsson and Nokia combined, according to public sources.

So intertwined were the activities of Huawei, Ericsson and Nokia in European telecom infrastructure that it is impossible to ban the sale of parts to one of them without affecting the others, an official explained. The official, who oversees telecom policy for one of the Group of 10 economies, doubted that Washington’s action would have much impact.

German Chancellor Angela Merkel and Dutch Prime Minister Mark Rutte told reporters Thursday that they would not ban the Chinese firm, adding that policies were in place to safeguard their security. French President Macron told a technology conference Friday that France’s “perspective is not to block Huawei or any other company. France and Europe are pragmatic and realistic.” Macron stressed that France would balance security with access to good technology.

After the Trump Administration suspended US exports of handset chips to the smaller Chinese telecom firm ZTE in the spring of last year, Huawei undertook a crash program to produce its own advanced chips. I reported exclusively in April that the Chinese firm had reached self-sufficiency as of December 2018.

Huawei’s Kirin chipset, designed by subsidiary HiSilicon and fabricated by Taiwan Semiconductor Manufacturing and other firms, effectively replaces the Qualcomm chips that power most high-end handsets.

A memo from the CEO of HiSilicon, made public last week, confirms that Huawei is independent in chip production, comparing the firm’s program to achieve self-sufficiency to the Chinese Communist Party’s Long March of 1934-1935.

Huawei imports several dozen electronic parts from American firms. Nikkei Asian Review and other media reported last week that Huawei has stockpiled a year’s inventory of critical components. Finding alternative sources or simply reverse engineering the products is a much less difficult challenge for Huawei than developing its own chipsets.

Google has suspended updates of its Android operating system for Huawei handsets, Reuters reported on Sunday. Huawei has developed its own handset operating system as a backup, but the Google ban would restrict Huawei’s use of Google apps, including Gmail.

China may retaliate with a price war for advanced chips. Huawei announced a full portfolio of artificial intelligence-enabled chipsets under the Ascend brand, powering large data processors as well as handsets.

After seizing a dominant position in telecom equipment, Huawei now competes head-on with America’s best chip design firms, including Qualcomm and Nvidia, in the processor space. Industry experts speculate that China might retaliate against America’s export ban by drastically lowering the prices of its AI-enabled chips, pushing the American firms out of Asian and European markets that comprise the majority of their sales.

The US export ban might backfire, locking Asian and European buyers into China’s emerging chip technology. Huawei became the dominant player in the telecom equipment market by undercutting its competition, forcing competitors out of the market, and hiring their best talent.

Of Huawei’s 188,000 employees, 40,000 are foreign, many employed in twenty-one research centers that the Shenzhen firm supports around the world. If the Trump Administration fails to hinder Huawei’s 5G rollout, as European leaders have indicated it will, Huawei may also emerge as a dominant player in chip design and manufacturing.

Not surprisingly, semiconductor stocks were among the worst performers on US exchanges last week. Nvidia was the worst performer on the S&P 100, losing 7.2% over the week. Trade war worries dominated sector performance in the S&P 500. Farm machinery was the worst performing sector in the broad index, an unsurprising result given the vulnerability of US farm exports.

The best-performing sectors all had a negative correlation to term yields: utilities, real estate investment trusts, consumer staples and homebuilders.

I continue to recommend defensive sectors in the US in a barbell with Chinese equities.

Source: Asia Times “US ban won’t derail Huawei’s European 5G rollout”

Note: This is Asia Times’ report I post here for readers’ information. It does not mean that I agree or disagree with the report’ views.