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This Is How The US-China Trade War Affects The Rest Of The World

This Is How The US-China Trade War Affects The Rest Of The World

The trade war between the US and China is once again at a fever pitch. The veto of Trump to Huawei for reasons of “national security” has crystallized in that the American companies cannot work with the Chinese company and this has direct consequences on the users of the whole world.

The first to react has been Google, which cannot continue to provide its Android services to Huawei. This implies that the one who is the largest seller of mobile phones in Spain cannot continue offering Google Play and other Google applications with their new terminals, something unimaginable for anyone who uses Android today.

The big question that arises now is whether the commercial war will have more effects on Spanish, Latin American and European customers and whether it will continue to affect the large international technology companies.

The commercial war and its derivatives

A trade war between the two countries is that both raise import tariffs so that they are less attractive to their citizens and they reduce their purchases from the affected countries.

In the case of the US and China, both countries have raised tariffs on imports of products from the opposite country. Therefore, any Chinese product that is affected by higher tariffs will be more expensive in the US and vice versa.

Now, how does this affect the American technology companies, so ubiquitous in our lives? Basically, if the services they provide or the goods they sell in China are taxed by higher tariffs they will sell less in this country and this will affect their accounts.

Companies like Facebook or Google have hardly any operations in China, so in principle, it should not have a big impact on your accounts. Microsoft does sell in China, and also has a problem similar to that of Google: its products are distributed by Chinese companies around the world.

The case of Apple is something special since it has a double slope. On the one hand, its sales in China are important but at the moment they are not affected by higher tariffs (yes, Apple makes in China but “imports” intellectual property). But on the other hand, the phones that Apple sells in the US are manufactured in China and therefore could be affected by these tariffs (at the moment they do not apply).

For Amazon, China (at least the domestic market) has never been a great source of income. In fact, China has recently decided to close its internal marketplace. Other businesses, such as the sale of Chinese products in the rest of the world, could be affected by either unconventional trade war (we’ll talk more about this later) or tariffs.

That the great technicians are affected by the commercial war is not good for them, it is clear, but neither for those who use their products and services. If they want to continue their great growth rate, they will probably have to use strategies to increase their income in the rest of the world, either with higher prices on the products they sell or with more intrusive ads to better monetize their free services.

The unconventional war

However, as in any war, there is foul play. And in this case, the US is using other tools to hurt the enemy. In the recent case of Huawei, put the Chinese company in the Entitiy List, which prevents him from doing business with American companies (for supposed reasons of national security).

This situation would directly affect Google, who despite not having a direct business in China does have it indirectly through the mobile phones of Chinese companies sold around the world, which have their services and their ads. If Huawei starts selling mobile phones without Google Play, this could affect Google’s revenue and profits.

China could use its “red button”: sell US debt

This has only just begun, and although the US has attacked very strongly one of the great symbols of China, Huawei, if it continues to harm Chinese companies could end up suffering other American companies as it is doing Google.

In addition, China can also use tactics not strictly tariff. On the one hand, China can use the wild card of Apple: veto the sale of its products in the Asian country. This would greatly affect one of the largest companies in the world. In fact, the fall of iPhone sales in China is already worrisome, and even if it is not due to direct consequences of the trade war there may be some nationalist sentiment among the Chinese that makes them reject American products.

Finally, China could use its “red button”, sell American debt. The Central Bank of China has large reserves of US debt. And he could sell it so that the US government will find it harder to finance himself. It would be an option that would face him (to sell something in a massive way to do harm translates into that this good is worthless, and therefore China would be spending a good part of its savings due to the trade surplus) but it would certainly destabilize the US economy.

How does it affect the rest of the world?

This Is How The US-China Trade War Affects The Rest Of The World

Latin America and Spain are out of this commercial war, and in principle the effects are indirect. But we already see that it can affect us completely: Huawei has been a very successful mobile provider in recent years by providing good quality terminals at a lower price than the competition. From now on, if the US measures are not reversed, either we will have a brandless to choose or their mobile phones will be “layered” without Google services, which results in worse user experience.

In the scope of the rest of the products that are not Huawei, we can also suffer the consequences. The simple increase of tariffs causes Chinese companies with American suppliers to increase their costs and this will surely affect the final price of the product. And the same thing the other way around: any American product with Chinese suppliers will be more expensive. In a world as intertwined and global as in which we live an increase in tariffs between two countries so powerful affects the whole world.

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On the positive side, there may be local companies that can take advantage of this opportunity to position themselves better in the international market. For example, Spanish companies that manage to export more (either in China or in the US) because their competitors are now more expensive for a simple tax reason. This would result in an increase in GDP (more sales, more dividends, and more employment).

There are studies that say that the biggest beneficiary of this commercial war would be the EU, but there is always doubt. What if this war leads to a global recession? This would happen whenever there was a scenario of global trade reduction, which is not good for anyone.

There is a precedent. In the midst of the Great Depression of 1929, the US increased tariffs under the Smoot-Halley law. The rest of the countries responded with higher tariffs and it is said that it aggravated the deep economic crisis that ended up affecting the whole world. Economists do not agree on how big the effect was but there is a consensus that it was harmful.

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