As the trade war between the United States and China escalate, the focus has now turned to the announced ban of Huawei by the United States. The company is now in what is known as an Entity List, which prohibits companies from doing business with it. The move has caught the world by surprise, especially after Google announced that it will stop supplying Android to the company. This was a big news because Huawei has grown to become the second smartphone company in the world after Samsung.
Here an in-depth about the impact in global market
Can Huawei survive without crucial parts?
First, the truth is that Huawei relies heavily on US parts for its smartphone and computer products. All its smartphones are powered with Android, which means that the company will have to develop its own operating system and convince app developers to create apps for it. Because of its scale, many developers could do this. The company also relies on American suppliers for its chips. The leading of these suppliers are Qualcomm and Intel, which provide better products. However, Huawei has developed its own Kirin chips, which will be used to power its devices. Therefore, the company could see some growth in future.
How China will respond?
The second question is on how China will respond. The truth is that China has more tools to attack the US. For example, while iPhones and other Apple products are designed in California, they are manufactured in China. The company is also betting on the Chinese market for growth. Therefore, with Huawei being in the Entity List, China could retaliate by banning Apple from the country. It can do this by closing Apple plants. While many Chinese people will lose their jobs, the country will be glad to see the decline of an American icon.
China can also do this by targeting other companies like Procter & Gamble, Caterpillar, and Boeing. It can also make life for these companies more difficult. In addition, it can continue the act of stealing or forcing technology transfers. The country can easily play this because it has more leverage than the United States. Trump has said that these companies are fleeing China, but this is not the case. Doing so will be expensive. Instead, they will likely compensate the tariffs with high prices.
The reason for this is simple. While China has a large trade surplus with the US, most of the goods are usually sold by American firms. These firms pay taxes to the US. On the other hand, very few Chinese companies do any business in the US. Most of its large companies are majorly domestic in nature and don’t do any business with the US. For example, companies like Baidu don’t have any operations outside of China. Alibaba does very little business in the US.
What traders should be careful about
As a trader, you need to know the large American companies that do a lot of business in China. These companies are the most vulnerable if the trade war move to a corporate warfare. Second, you need to understand the American companies that rely on parts from China. This is because China can do things to hinder their businesses.