One of the biggest suppliers of iPhone components has warned that the US-China trade dispute may upset the Apple supply chain.
“It is a new challenge and it something that I have not had to face in the past but my successors will have to face that risk,” said Morris Chang, founder and outgoing chairman of Taiwan Semiconductor Manufacturing, which supplies processor chips for the iPhone. “What they can do? I don’t know.”
Mr Chang’s comments came as Washington asked China to slash the $337bn US trade deficit with China by $200bn by 2020, reduce tariffs and cut subsidies for emerging industries — a move that followed weeks of escalating threats of tariffs between the world’s two largest economies.
While TSMC makes most of the core processor chips for Apple’s iPhones at its factories in Taiwan, Mr Chang, whose company generates about half its $33bn in annual revenues from mobile devices, was concerned that the broader mobile handset supply chain would be affected if the US ramped up tariffs.
He offered a perspective on what a fully blown US-China trade war would mean for groups deeply integrated into global supply chains.
“China does a lot of assembling of the final product, so the US-China trade dispute may impact us also,” he said.
New tariffs on Chinese electronic products would increase the costs of electronic parts shipped from China to the US, said Iris Pang, an ING economist for greater China, who added: “The supply chain effect would then be complicated.”
Apple suppliers without major production sites outside of China faced the highest risk, said Sam Kao at Taipei-based Yuanta Securities. He pointed to a basket of electronics manufacturers that could be put under pressure, including Foxconn, Pegatron and Wistron, among others.
Certain Chinese tech-related manufacturers would be “hit directly” by new US tariffs but looking at that impact alone would “underestimate” the affect on the Chinese economy, Moody’s analysts said.
Oliver Cox, a portfolio manager with JPMorgan’s Pacific Technology Fund, said that while new tariffs could cause cost pressure on Apple in the short-run, he did not expect a long-term impact.
Apple “and their supply chain have demonstrated a high degree of flexibility in adapting to change and bringing costs down”, Mr Cox said.
China and the US “so far have avoided key high-volume tech categories since the supply chains are mutually dependent on suppliers from both sides”, said Randy Abrams, an analyst with Credit Suisse in Taipei.
“Our view is the first round of tariffs excludes final products of smartphones, notebooks and tablets and only includes TVs of the major tech consumer products which Apple is not supplying so should have a limited impact on the costs for Apple or its supply chain,” he said.
But even if the tariffs are designed to minimise the affect on companies such as Apple, “it is a near certainty that part of their component supply chain will get caught up,” said Duncan Innes-Ker, The Economist Intelligence Unit’s Asia regional director.
“Apple’s final products may escape the tariff net that has been thrown out, but it is inevitable that there will be some impact on the supply chain, as many of the components involved will be affected,” he said.
Apple did not immediately respond to a request for comment.
Mr Innes-Ker said a bigger risk for Apple would be if China pressured Washington by making “life more uncomfortable for US firms in China”.
“Given China’s importance to Apple as both a production base and a market, this could pose significant risks for the company,” he said.
Mr Chang however was wary that the standoff between Washington and Beijing could become worse than what he experienced during the US-Japan trade war in the 1970s — a dispute he experienced first hand while leading the semiconductor division at Texas Instruments.
“We resolved that pretty peacefully, satisfactorily, for both Japan and the US,” he said. “This time it may not be so friendly. Right now it doesn’t seem that friendly.”