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Apple suppliers wary of trade war

iPhone assembler Pegatron boss mulls moving some production to the US

An Apple store in Beijing   © Reuters

TAIPEI -- Many Apple suppliers and tech industry executives are voicing concerns that a trade war between the U.S. and China will not only damage their businesses but also the industry and economic growth as a result.

Even as Washington and Beijing are negotiating to alleviate tensions, industry leaders called for moderation. "We are against trade protectionism, as it would only stall industry development and drag on economic growth," key iPhone assembler Pegatron Chairman Tung Tzu-hsien told reporters on Tuesday after the opening ceremony of the 2018 Smart City Summit & Expo in Taipei.

Pegatron counts Apple as its No. 1 customer but it also manufactures for other electronic brands such as Asustek Computer and Microsoft. Like most other Apple suppliers, most of its manufacturing facilities are in China and any of the tariffs imposed on Chinese imports to the U.S. could hit its profits.

Tung even voiced the possibility of moving some of its production to the U.S. if the situation worsened. He added that Pegatron could turn the maintenance and repair facilities in the U.S. and Mexico into assembly lines in a short time.

However, he said such temporary measures could only support production needs for three to 12 months and not sustainable for the long term. Meanwhile, it will be difficult to expand the size of U.S. plants into assembling bases with "hundreds of thousands" of employees because of the high labor costs in the U.S, Tung said.

Tung added that the whole supply chain would face high import costs for other key components, which would in turn hike up prices and affect product sales in the U.S.

President Maurice Wu of Inventec, another leading electronic contract manufacturer that counts HP and Dell as key clients, voiced similar concerns. Inventec's subsidiary Inventec Appliance is an Airpod and Homepod maker.

"Trump's fights with China will do nothing good to almost everyone," said Wu in an investor's conference. "It would be a disaster if there is a trade war and it's difficult to ease the impact ... Our clients are even more cautious about this."

Apple suppliers are one of the most vulnerable in the event of a trade war, according to analysts at investment bank Morgan Stanley in a recent report, as Apple outsources the manufacturing of most of its products to factories that are largely located in China. Those include major iPhone assemblers Hon Hai Precision Industry (better known as Foxconn Technology Group), Pegatron and Wistron.

In the worst-case scenario, Morgan Stanley said that the Apple supply chain could face a rise of as much as $8 billion in costs.

According to China customs statistics, more than 10 of the country's top 20 exporters to the U.S. were Apple suppliers in 2016. They include subsidiaries of Foxconn, Pegatron, Wistron, MacBook maker Quanta Computer, iPad supplier Compal Electronics and also Singapore-based Flextronics.

Foxconn, Wistron and Quanta declined to comment on the current trade tensions.

Most Asian tech stocks saw a rebound on Tuesday as ongoing talks between Washington and Beijing spur hopes that a trade war could be averted and that proposed tariffs by President Donald Trump and retaliatory actions by China will not be imposed.

However, shares of some key Asian chipmakers fell as China was reportedly offering to buy more semiconductor chips from American rivals at the behest of the U.S. as part of the negotiation. Shares in key chip suppliers such as Taiwan's MediaTek, a smaller rival of mobile chip provider Qualcomm, and memory chipmakers of Samsung Electronics and SK Hynix of South Korea all traded lower on Tuesday.

Uncertainties still loom in the technology supply chain. Economists warned that even if there was a temporary agreement this time, trade conflicts between U.S. and China could still be triggered.

"Trade issues are not going to go away overnight and the current trade frictions between the U.S. and China are not going to be the last time," said Wu Chung-Shu, president of Chung-Hua Institution for Economic Research. "We could see this type of negotiations and conflicts again and again even in the near term. The whole tech supply chain is still under pressure."

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