Over the past year, China and United States (US) have imposed tariffs on billions of dollars' worth of goods as both parties ratcheted up bilateral trade tensions which threatened to disrupt the global economy. Since Aug 2018 the US government has announced tariffs on US$550 billion worth of Chinese product categories, to which China has reciprocated with its own set of tariffs worth US$110 billion on various categories of US goods.
The TMT sector is one of the main targets of the US tariffs. Tariffs relating to technology and devices were featured in every round of US government’s announcements with the largest impact seen in the latest round. In the table (refer to Appendix), it can be seen that the latest round of 15% tariffs to be imposed will be on the largest portfolio of technology product categories, with an estimated market value of US$300 billion. This impacts finished products such as PCs and phones that are exported from China to US. The value of the estimated TMT export value in 2018 was close to US$115 billion.
Given the increasing challenges faced by the TMT sector as trade tensions persist, our report sets out to present our findings on the implications of trade tensions on the TMT value chain in Southeast Asia. Through extensive analysis conducted on empirical evidence and anecdotal examples (i.e. expert interviews with industry players), we have identified the key players impacted, as well as validated our hypothesis against the potential implications of the tariffs.
Our channel checks indicate that Original Equipment Manufacturers (OEMs) will bear the brunt of the cost of tariffs imposed relating to products manufactured in China. Lead on impact will result in Electronics Manufacturing Services (EMS) players facing pressure to ramp up capacity in alternative markets, in particular Southeast Asia, to diversify this risk. However, China will still remain as the key manufacturing hub in the near future, while there is an opportunity for diversification into the Southeast Asian market in the long run.
Such uncertain times will prove to be challenging for tech players in the region As current trade tensions persist, a new status quo may surface within the technology supply chain which will require players to balance not only profits and efficiency, but also risk diversification.
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