On July 6, 2018, US tariffs on US$34 billion worth of Chinese imports took effect, and the Chinese government immediately fought back by announcing its own version of retaliatory duties on US goods, officially setting off a trade war between the world’s two largest economies. At the time of writing, even more tariffs are being planned by both sides.
The trade war will negatively impact both economies, particularly the Chinese economy in view of its massive trade surplus with the US, said research firm IDC.
According to IDC China’s research, the imposition of tariffs by the US and China on US$34 billion worth of products from each side will bring down China’s GDP growth in 2018 by 0.2 percentage points (from 6.7% to 6.5%) by affecting approximately US$25 billion of GDP (US$1=RMB6.7).
Specific to China’s ICT market, the overall growth in 2018 will decline by 0.6 percentage points (from to 9% to 8.4%), with approximately US$4 billion of market being affected.
The trade war’s impact on China will mainly play out in three dimensions, IDC says:
- The impact of the US tariffs on Chinese goods and industries;
- The impact of exchange rate changes on Chinese industries if the RMB depreciates; and
- The impact on China from US goods affected by Chinese tariffs.
The impact of the trade war on the Chinese economy will directly and indirectly involve almost all industries. The manufacturing industry will be hit the most, especially in those areas related to the Made in China 2025 industrial policy, and the services sector, especially technology services.
The Chinese ICT market is expected to suffer a greater negative impact from the trade war than China's national GDP because the outlook of a lower GDP growth will affect ICT purchase and a cheaper RMB will significantly increase the overall cost of China's ICT industry as it relies heavily on imported technologies.
IDC's advice to ICT vendors and end users:
- Follow the latest developments of the China-US trade war and their impact on the industries: whether the US will follow through on the proposed tariffs on US$200 billion worth of Chinese goods and when; what retaliatory actions China will take and when; what industries will be involved and the specific impact.
- Adjust export and globalisation strategies: make full use of national policy related to globalisation and increase market expansion in other countries including countries along the Belt and Road.
- Control overall costs: If companies rely on US imports for core components, the depreciation of RMB will increase their cost. Therefore, appropriate cost control will be a key measure in response to the crisis.
- Continuously invest in core technologies and digital transformation: The digital economy will maintain high-speed growth in China and globally. Increasing investment in strategic areas at a time when the overall economy is facing challenges will build foundation for future growth.
“While the China-US trade war has some negative impact on the Chinese economy and the Chinese ICT market, globalisation will remain in the mainstream in the long run, and so will China-US complementarity and cooperation, and digital transformation of the economy,” said Kitty Fok, MD, IDC China.
“ICT vendors and industry users should take the current challenge as an opportunity by creating appropriate strategies of response and continuously investing in digital transformation enabled by new technologies to achieve technology-driven multiplication of insights, of development, of trust and, ultimately, of innovation.”
The Chinese products targeted by the US tariffs include robotics, aviation and aerospace, industrial machinery, automobiles, rare earth metals and LED light bulbs. Of the 1,102 categories of products targeted as of early August, only 1% are consumer goods says IDC, with the rest being mainly products in the secondary sector and related to the areas identified and encouraged by the Made in China 2025 initiative.
The list of US$34 billion US goods targeted by China’s retaliatory tariffs is composed of 545 items, including automobiles, mainly concentrated in the primary sector of the US economy.
The trade war will negatively impact both economies, particularly the Chinese economy in view of its massive trade surplus with the US, said research firm IDC.
According to IDC China’s research, the imposition of tariffs by the US and China on US$34 billion worth of products from each side will bring down China’s GDP growth in 2018 by 0.2 percentage points (from 6.7% to 6.5%) by affecting approximately US$25 billion of GDP (US$1=RMB6.7).
Specific to China’s ICT market, the overall growth in 2018 will decline by 0.6 percentage points (from to 9% to 8.4%), with approximately US$4 billion of market being affected.
The trade war’s impact on China will mainly play out in three dimensions, IDC says:
- The impact of the US tariffs on Chinese goods and industries;
- The impact of exchange rate changes on Chinese industries if the RMB depreciates; and
- The impact on China from US goods affected by Chinese tariffs.
The impact of the trade war on the Chinese economy will directly and indirectly involve almost all industries. The manufacturing industry will be hit the most, especially in those areas related to the Made in China 2025 industrial policy, and the services sector, especially technology services.
The Chinese ICT market is expected to suffer a greater negative impact from the trade war than China's national GDP because the outlook of a lower GDP growth will affect ICT purchase and a cheaper RMB will significantly increase the overall cost of China's ICT industry as it relies heavily on imported technologies.
IDC's advice to ICT vendors and end users:
- Follow the latest developments of the China-US trade war and their impact on the industries: whether the US will follow through on the proposed tariffs on US$200 billion worth of Chinese goods and when; what retaliatory actions China will take and when; what industries will be involved and the specific impact.
- Adjust export and globalisation strategies: make full use of national policy related to globalisation and increase market expansion in other countries including countries along the Belt and Road.
- Control overall costs: If companies rely on US imports for core components, the depreciation of RMB will increase their cost. Therefore, appropriate cost control will be a key measure in response to the crisis.
- Continuously invest in core technologies and digital transformation: The digital economy will maintain high-speed growth in China and globally. Increasing investment in strategic areas at a time when the overall economy is facing challenges will build foundation for future growth.
“While the China-US trade war has some negative impact on the Chinese economy and the Chinese ICT market, globalisation will remain in the mainstream in the long run, and so will China-US complementarity and cooperation, and digital transformation of the economy,” said Kitty Fok, MD, IDC China.
“ICT vendors and industry users should take the current challenge as an opportunity by creating appropriate strategies of response and continuously investing in digital transformation enabled by new technologies to achieve technology-driven multiplication of insights, of development, of trust and, ultimately, of innovation.”
The Chinese products targeted by the US tariffs include robotics, aviation and aerospace, industrial machinery, automobiles, rare earth metals and LED light bulbs. Of the 1,102 categories of products targeted as of early August, only 1% are consumer goods says IDC, with the rest being mainly products in the secondary sector and related to the areas identified and encouraged by the Made in China 2025 initiative.
The list of US$34 billion US goods targeted by China’s retaliatory tariffs is composed of 545 items, including automobiles, mainly concentrated in the primary sector of the US economy.
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