US-China trade war offers opportunities, risks to tech companies

09 July 2019 Consulting.us

The ongoing trade war between the US and China heavily affects the technology industry, and there is no end yet in sight. One thing, however, is becoming increasingly likely, according to a publication by Boston Consulting Group (BCG): “There will be no return to the previous status quo.”

The trade war’s conclusion will not be a total compromise according to the publication, “Unpacking the US-China Tech Trade War.” Rather, it will be a step in easing geopolitical tensions between the two countries. Four scenarios have the potential to play out, with tariffs ranging from “broad and sweeping” to “narrow and targeted,” and technology competition from “open” to “managed.”

At best, the US and China could come to an agreement that involves true reciprocity when it comes to tech trade. The US would do away with broad-based tariffs and restrictions, while China would allow digital services exports and IP into its market. At worst, the trade war would transform into a technology cold war, with tariffs increasing – and the potential introduction of total import bans. Straddling the divide between the two poles are results of moderate intensity, involving higher tariffs, unresolved structural issues and friction, and other restrictions. 

Potential Scenarios for Resetting US-CHina Tech Trade

“There is still a possibility that we will really have two technology worlds: a Chinese one and a US one,” Hans-Paul Burkner, BCG’s chairman, said in an interview with CNBC. “Hopefully it will not come to that, but it’s not impossible.”

When gearing up an unknown future, BCG advises, tech companies would do well to prepare for all likelihoods. “Rather than try to predict which scenario is most likely, we recommend that companies analyze their businesses and products against each scenario,” the publication states.

Tech companies must first analyze exposure and develop playbooks, BCG says. “This will enable them to estimate the impact of potential tariffs and technology restrictions on their businesses.” With a playbook of actions that could potentially be taken – production sites or suppliers in other countries, for example – as well as a thorough assessment of product impact, which could help illuminate market advantages and disadvantages.

Proactivity is also key in preparing for the trade war’s outcome. Companies should “identify a series of no-regrets moves, such as creating sourcing options by prequalifying new suppliers” or “ensuring end-to-end transparency and integrity of the supply chain” by leveraging the Internet of Things or blockchain. By doing so, tech companies will ensure they won’t be left with their hands in their pockets when the time for action comes.

Additionally, tech companies should begin shaping policies, whether they be “broad and structural” or “technology specific,” tailored to the different political systems in the US and China. 

Regardless of the trade war’s outcome, tensions between the US and China show no sign of easing in the years to come. This will present both risks and opportunities for tech companies in particular. 

“A proactive and strategic approach will enable resilient companies to navigate through the uncertainty and thrive as the world’s most important trade relationship is reset,” the publication concludes.


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