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Repercussions of the "Trump Trade War" on the World's Smartphone Makers.

Updated: Feb 13, 2019


Donald Trump’s trade policy decisions have left many Industries shook which include shipping industries, steel industries and also the farmers of the US. Now, it’s time for the Smartphone makers to bear the jolt of it.

The Apple Chief Executive Officer Tim Cook told investors in May’17 that he wasn’t worried about the Trade War between USA and China as both of them were so inter-connected to each other and that if one would fall, the other will fall too.

Apple Inc. on 2nd January, for the first time in 15 years, cut its revenue projections by more than 7% because of the decline in their IPhone sales in its third largest market, China because of the Trump’s Administration Trade Policies. This fueled a broader sell-off against investors and resulted in a 10% decline of its Market value.



Coming to China’s big smartphone and equipment manufacturers, they’ve been under intense pressure from the Trump administration, which is seeking to limit China’s control of fifth-generation, or 5G, wireless networks as according to the US Intelligence Agency, this poses a potential security risk against US. The fear being that the Chinese Government would manipulate these big companies- ZTE and Huawei to operate in a secretive and a dishonest way i.e. not disclosing all of it’s working because ZTE in March’17 was pleaded guilty for illegally exporting U.S. technology to Iran and North Korea in violation of trade sanctions, and was fined a total of US$1.19 billion by the U.S. Department of Commerce.


On 7th of January, when the Chinese and Americans met to discuss the trade policy, Canadian law enforcement officials, working at the behest of the U.S., detained Meng Wanzhou, Huawei’s chief financial officer, while she travelled through Vancouver. The U.S. has accused Meng of fraud in connection with alleged violations of sanctions that prohibit doing business with Iran. Meng denies the charge.


In April 2018, the U.S. Department of Commerce announced that the company hadn’t complied with a settlement related to its own violations of Iran sanctions. The Trump administration’s punishment: a seven-year ban on working with U.S. suppliers.

It was found that:

- ZTE began secretly working with Iran as far back as 2010

- Sent American components to the country

- Set up shell companies

- Removed logos from packages

- Spoke about customers in code.


Consequences:

- Production lines stopped running

- Operating activities started ceasing

- Factories were closed

- The company started furloughing(grant leave of absence) to employees.

The reason being that out of the important components needed for manufacturing, cell phone modems and networking switches being an integral part were supplied by the US companies.


On May 13th, Trump showed his upper hand by reversing the course and tweeting that because of the loss of jobs ZTE faced, he’ll save ZTE. The ban was lifted when ZTE replaced its senior management and agreed to pay $1.4 billion as fine. The company had to cut back on its smartphone operations and had to sell off hundreds and millions of dollars’ worth of real estate to help pay its fines.




To China’s political leaders, the ZTE episode served as inspiration to reduce the country’s reliance on America’s tech industry. In April, according to Xinhua, President Xi gave a speech arguing that “core technologies are important instruments of the state.” The implication: China should make the chips that would free its tech companies from U.S. suppliers. Since then, Huawei has made several announcements about progress on new semiconductors that would compete with those from U.S. chipmakers such as Intel, Nvidia, and Qualcomm.

Tensions simmered over the following months as several U.S. allies indicated they wouldn’t work with Huawei or ZTE on 5G. Then came Meng’s arrest. The coincidental timing showed as if Trump was giving an indirect signal to President Xi though Trump later said he hadn’t directed the arrest.

Experts say that though the Chinese are years away from being truly independent of the Western Technology but the ZTE cutoff has made the Chinese more aggressive and in desire to become independent has accelerated.

In a sign that Huawei isn’t holding out much hope for repairing its image in the U.S., the company has mostly abandoned its lobbying efforts in Washington. ZTE has taken the opposite approach. It spent more on lobbying in 2018 than in the previous three years combined.

As per the current senario, both the companies are still struggling to cope up with the situation and the future is uncertain. But one thing is definite, though Trump showed his power by taking such a decision, but in the long run it is going to be tough for the US.

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