Apple will always be a premium brand. The company derives a lot of satisfaction in keeping its prices remarkably high. Despite the polarizing scheme, Apple has found massive success, increasing sales throughout the years. The brand’s fans are, of course, more than happy to lap it all up.
However, this tenuous balance between price and demand might soon topple over. Apple finds itself at the behest of America’s volatile foreign policy. Because of tense Sino-American relations, Apple might have to increase its prices soon.
The strange relationship between America and China is no surprise to most people. The subtle feud has even found its way into the tech industry. This year, Huawei and ZTE have only experienced hostility from the American corporate world. Now, as the year winds down, Apple is the rivalry’s next victim.
This week, President Donald Trump will meet with President Xi Jinping. In this summit, Trump will increase tariff levels on Chinese goods. On the opposing side, Xi will try to dissuade the US president from the increase.
If implemented, the new tariff level will affect the prices of products made in China. Initially, Trump assured that Apple’s products will not be affected. (Apple’s manufacturing chain is in China.) However, this won’t be the case. According to the Wall Street Journal, the tariff will affect most China-made consumer products, regardless of brand. It might increase Apple’s prices by 10 percent.
With that, Trump has changed his tone. The president now says that the new prices won’t affect the brand’s demand, claiming that “people could stand that very easily.” Of course, consumer demand will ultimately depend on the consumers, not the president’s words. Despite increasing sales, Apple has reportedly been dissatisfied with demand. Only time will tell if consumers will start caring less about Apple’s fast-moving iPhones.
If Apple wants to keep its prices, they are left with only one option: moving its production elsewhere. However, this move isn’t optimal either. It will take a considerable amount of capital and labor. Regardless of Apple’s decision, the brand is caught in between a Chinese rock and an American hard place. Sadly, Apple’s fans will likely bear the brunt of this decision.
Huawei in ‘battle mode’ amid US turmoil
Will focus on downsizing workers
Huawei just can’t stay out of the news. After Trump’s latest pledge to ease Huawei’s restrictions, the American government has yet to deliver the goods. As far as Huawei is concerned, the Chinese company is still treading on incredibly thin ice. Lately, the US merely extended Huawei’s temporary license, leaving a more permanent solution on the shelf.
Earlier this year, Huawei gained a 90-day temporary operating license. The reprieve will supposedly help the company ease into its banned status in America. It also helps American companies transition from using Huawei’s product to other alternatives. The license originally ended last Monday, August 19th. However, at the last minute, the American government extended the license for another 90 days, allowing Huawei to still operate on American soil.
Despite the good news, Huawei isn’t happy. Once again, the company finds itself in a state of temporary limbo, uncertain of a permanent legal status. Following the extension, Huawei CEO Ren Zhengfei has issued an all-hands-on-deck ultimatum for his employees. In an internal memo, Ren is asking workers to pursue sales targets more aggressively. Huawei is now in “battle mode” in a race for survival.
“If you cannot do the job, then make way for our tank to roll; And if you want to come on the battlefield, you can tie a rope around the ‘tank’ to pull it along, everyone needs this sort of determination,” the memo said.
Additionally, Ren will focus on increasing supply production and eliminating/demoting lackluster workers. In a nutshell, Huawei will potentially work on downsizing amid the American crisis.
Regardless, Ren remains determined and optimistic for a bright future. “After we survive the most critical moment in history, a new army would be born. To do what? Dominate the world,” the memo concludes.
Trade war: How the US played its trump card wrong
The dragon is no longer sleeping
The US and China are embroiled in a trade war and the last few months have witnessed unprecedented escalation from both sides. Tensions between the two countries are ongoing and virtually two power blocs have been created. The conflict has also changed everyone’s outlook on technology forever.
US President Donald Trump banned American companies from working with Huawei, one of China’s largest technology companies. This meant Huawei could no longer use American technology, including Android. Thankfully, an interim resolution lets Huawei transact with American counterparts right now.
However, this was a blaring reminder for China. It depends too much on the US for technology and this needs to end. For two power blocs, interdependence isn’t an option. And the US played its trump card at the wrong time, in a wrong way.
Trade war affecting free flow of tech
Technology has been freely flowing since the inception of the Internet. Everyone has been connected to a neutral medium of communication except for a few countries. The flow of information has been so fast, yet transparent. Adding to this, open-source has been a boon for everyone since technology is never restricted and everyone gets a chance to experience it.
Even if a service or product is proprietary, companies have been quick to monetize it via licensing. There are apps that are built in one country and used by citizens of another country that’s thousands of miles away. In a nutshell, we’ve always imagined modern or digital technology to be easily transferable.
But, the US proved it can stop this flow of sanctions or bans, only to reverse the decision. We can call this saber-rattling. They wanted to serve a warning and the message has been received. However, China also realized one thing, it needs to become truly independent.
The Chinese internet is different from the rest of the world’s internet. It’s guarded by a nation-wide firewall and heavily censored by the state. A few services like Google and Facebook aren’t available. This has already made way for homegrown alternatives like Baidu, Weibo, and WeChat.
Now, Huawei is gearing up for the worst. It accelerated work on its own operating system, HarmonyOS. It’s expected to roll-out slowly in the coming quarters. In a bid to challenge Google Maps, they’re also planning to unveil a mapping service known as Map Kit.
Every Chinese company would be scrambling to create a backup plan, preparing for the worst. In the short term, they’ll suffer due to sudden shortcomings. But in the longer run, the US loses its leverage.
The ban is bad for progress
The US government’s ban on Huawei is ill-timed. The company is a leader in 5G deployment due to its patents and manufacturing ability. The world needs Huawei to effectively deploy the next standard of wireless communication. If the US wants its allies to avoid Huawei, alternatives need to be available, and that’s not the case.
Even US companies aren’t very fond of getting dragged in the trade war. Trump agreed that tariffs on China will hamper Apple’s ability to compete with Samsung. Not to forget all the revenue US companies lose after sanctions are applied or the Chinese develop their own alternative.
Other countries also have only two options — get in line with the US or develop its own cushion. A territorial divide has also prompted countries like India to lobby for data localization. In case relations turn sour tomorrow, how much control do you want to give others?
These questions and hypothetical scenarios are often considered to be an exaggeration. And I don’t blame them. But the US could’ve used this trump card later, actually benefiting from it.
Trade War: China’s loss is everyone’s gain
The flow of technology remains untouched
Trade tensions between the U.S. and China have reached a stage where hostility has become a new normal. Both countries have imposed high tariffs on a substantial proportion of each other’s goods and just when we thought the war is de-escalating, President Trump announced 10 percent tariffs on a further US$ 300 billion worth of Chinese goods.
It’s not surprising that China’s technology muscle is independent to a huge extent. The country is the world’s number one smartphone maker in terms of volume, almost every company on this planet relies on components that are made in China, and giants like Baidu, Tencent, and Alibaba offer everything to the end-user.
Sure, Chinese technology giants still rely on a huge chunk of western technology and we’ve already seen how Huawei took the biggest hit. But, while all of us are busy analyzing and understanding the trade war, other countries are making moves, and they’re making them fast.
Other countries swooping in
It’s a classic story of two cats fighting for a piece of cake and a monkey swoops in, fooling both of them. The two incumbents gain nothing in the end and a third-person reap all the benefits. Obviously, a literal translation would be an exaggeration, but we’re seeing a similar anomaly with the Trade War.
According to the U.S Census Bureau, Chinese imports have dropped by US$ 31 billion in the first half of 2019. But, Southeast Asian countries like Vietnam, India, and South Korea have successfully bridged the gap. Vietnamese imports to the U.S increased by a whopping US$ 7.6 billion, followed by South Korea at US$ 3.8 billion and India at US$ 2.7 billion.
These records are a combined figure of all imports and not just limited to technology products and services. But, the tides are changing massively in this industry as well.
Companies are uncertain about their long-term investments in China and are looking for alternatives. Samsung and Intel were looking for safer options for years and currently employ 182,000 workers in Vietnam. These factories assemble smartphones, processors, and almost every component one needs.
According to Bloomberg, the Vietnamese government allowed investment licenses to 1,720 projects in the first half of 2019. Nintendo has decided to shift its Switch production to Vietnam and even Sharp has announced relocation plans.
Foxconn, the maker of iPhones in China has bought a land parcel in Vietnam and announced a US$ 200 million investment in India. Apple, in partnership with Wistron India and Foxconn, is already making iPhones in the country and recently top-of-the-line models were also being shipped out.
Samsung already has the world’s largest mobile phone factory in India that assembles top-tier variants, ready for export. While the quantity is negligible when compared to China’s output, these small steps are an indication that China is slowly losing its edge.
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