With less than a day remaining until app stores in the United States remove TikTok and WeChat, China is now considering punishing US tech corporations with sanctions. Apple and Google were the two major tech companies mentioned, but any future sanctions would not be restricted to those two. The Chinese Commerce Ministry also stated today that it is considering adding Apple and Google to its “Unreliable Entities List” which is essentially a corporate blacklist. Companies on the list are restricted from investing in China, or engaging in trade with the Chinese market. Beijing has threatened sanctions and similar actions against US companies in the past, and as Sino-US relations continue to fray, the threatened sanctions grow bolder.
These moves seem to indicate that China is prepared to retaliate and risk an escalation. TikTok and WeChat are two popular Chinese apps. Their use contains grave national security implications for the US as it is believed that user information can be accessed by the Chinese government. The US government, along with many companies that do work with it, has banned its workers from using TikToc and WeChat. The apps parent companies have failed to address the issue to the satisfaction of the White House. WeChat has come under fire by the US government for being a platform for Chinese-language disinformation and can be subject to censorship by the Chinese government.
The coronavirus outbreak has cast a light on the indispensable role China plays in global supply chains. China is the manufacturing base for a large percentage of global businesses and the virus has kept many factories and plants shuttered since the end of the Lunar New Year holiday. As the virus continued to affect every facet of life in China, with large swaths of territory under quarantine restrictions, multinational companies are waking up to the realization they could be facing a potential long-term disruption in the supply chain. The electronics industry is being particularly hard hit by disruptions to its supply chain. With assembly plants that make the iPhone in China still closed Apple will likely ship 5-10% fewer iPhones this quarter according to analysts.
With the economic blowback of the coronavirus continuing to expand, many companies are coming to the realization of how vulnerable their current supply chains are to disruption. The single geography sourcing strategy is suddenly not so appealing. As a result, alternatives are being examined carefully. The race is on to design sustainable supply chains that can overcome the disruption challenges of the present-day and the future. Regional sourcing will become more prevalent, meaning an economic boost for developing regions in places like Africa, and South America. Unfortunately, their good fortune will come at China’s expense and this is something that Beijing will not take lightly to.
Author’s Note: Short posting today, I apologize. Chemo effects kind of knocked me out, but I’ll bounce back with more detailed posts tomorrow and this weekend.
The United States and China will begin two days of trade talks early next week in Beijing. This round of discussions will be the first in-person meeting between representatives of the two nations since President Trump and Chinese president Xi Jinping’s discussions at the G20 Summit in Buenos Aires last month. Those discussions between the two leaders brought about a 90-day halt on further tariffs and the talks scheduled for 7-8 January, 2019 are officially being held to further the implementation of the agreements made between Trump and Xi. Unofficially, China’s rush to put together the upcoming talks could indicate growing unease in Beijing about the Chinese economy’s recent downward trend, and the effects that the US-China trade war is beginning to have on it. China’s stock market indices experienced rapid gains once the trade talks were confirmed, showing that anxiety about the state of China’s economy is not restricted to the government.
The massive, and destabilizing US-China trade war scenario prophesized by a number of prominent Western economists has failed to come about. Both nations are making a concerted effort to prevent the current level of tariff exchanges from escalating, while still protecting their respective positions and principles. So far Washington and Beijing have succeeded in this effort. Still, there is cause for concern on the horizon and it is directly connected to the performance of China’s economy in the coming months. This week’s warning from Apple about weak iPhone sales in the PRC is the latest in a litany of somber economic news emerging from the Asian giant. Auto, and new home sales have declined, and factory profits are dropping. GDP growth is also growing sluggish, and there is legitimate concern now among economists and investors that China’s economic slowdown will worsen before it improves.
If that turns out to be the case, the first victim could be the 90-day tariff ceasefire now in place. Next week’s talks should give the world fresh insight to the Chinese government’s own interpretation of its economic prognosis, as well as an unguarded glimpse at just how much pain the tariff exchange with the United States is causing for Beijing.