View from Taipei: Asia on the edge as companies rise to the trade war challenge
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Trump's new trade tariffs are spreading fear, uncertainty and doubt across Asia.
Something happens when you ask an engineering executive to speak anonymously about the US trade tariffs targeting China. Corporate politeness gives way and you get sentences structured like this: “Trump”, verb, indefinite article, expletive, noun of psychiatric origin. Remember the Rec Tillerson quote? It’s started a trend.
Bob Woodward’s new exposé of the Trump White House, ‘Fear’, has plenty of examples. Hearing them for this column is therefore as close to greatness as I'll ever get. What was surprising was where I heard such invective.
Asian businessmen choose their words very carefully when talking to journalists on or off the record. Not on this topic, albeit privately. Visiting Shenzhen, Seoul and Taipei in the last few weeks, the anger and frustration was never far from the surface.
Tech execs in Asia see Trump’s problem: China has the US in its sights. Its historically cavalier attitude to intellectual property is a charge they also level. But Trump just doesn’t get how business is done. And he won’t listen (another theme that runs through Woodward’s book).
When the tariffs were first threatened, the point was made that many products made in China need imported components and involve foreign partners. So there was an obvious risk of domino damage, across the Asia-Pacific region in particular. Korea’s chaebol like Samsung, LG and Hyundai have major links to China. Taiwan is the world’s largest producer and exporter of semiconductors and home to two of its biggest contract manufacturers, Foxconn and Pegatron.
Now things have gone from threat to reality.
The Caixin Purchasing Managers Index is considered the main bellwether for the health of Chinese manufacturing. In August, it dropped to a 14-month low of 50.6. Anytime over 50 points to an increase, but the index is tightening amid uncertainty.
Meanwhile, August also saw both Foxconn and Pegatron post disappointing financial results. Foxconn was hit by a more-expensive-to-produce iPhone. Pegatron wasn’t.
Moreover, Foxconn chairman Terry Gou had already warned that a looming trade war was “the biggest challenge we face” at his company’s AGM in June.
It is true that Trump's first wave of tariffs largely exclude high-tech goods, apart from some lower-volume exceptions like Google’s Nest smart thermostat.
The problem is partly the tone of the administration’s rhetoric and, more to the point, the likelihood that price increases in those products that are hit will depress US household spending in other areas like, well, consumer electronics.
If Trump goes through with his threat to extend the tariffs to all Chinese imports, as Kurt Vonnegut would say, so it goes.
Talking to Asian managers, one other element comes into play: their concerns are not just about the health of their businesses.
In South Korea, the issue of tariffs is, whatever Trump might think, linked to its relationship with the North. Trump offered some brief optimism here. That is fading as the White House appears to rediscover a more traditional bellicosity.
In Taiwan, relations between the island and the mainland have not soured as much as many feared they might after the election of a more independence-minded President, Tsai Ing-wen.
Her administration’s suggestion that companies rise to the trade war challenge by doing and making more locally has also been seen as unhelpful, even by some supporters.
What is it with politicians and global supply chains? We know they don’t get tech, but do they get anything? [sideswipe: nobody I met in Asia has much time for Theresa May either... but they are more polite]
Really, that sums it up. The view from Taipei or Shenzhen or Seoul is gloomy. Businesses, national economies and, worst of all, political stability are at risk.
Pass me an expletive and a noun of psychiatric origin.