How tariffs between the US and China could hit American tech companies the hardest

In an attempt to force China to narrow the bilateral trade gap with the US – and perhaps to prompt an easing of China’s alleged industrial policies in support of certain sectors seen as threatening to American technological dominance – the United States has imposed tariffs on a range of “made in China” products.

Two important changes have taken place in the international economic system in the past few decades. First, production has been broken down and distributed across multiple locations in global networks. While China might be responsible for the final assembly, many embedded high-value components are produced in developed countries, including the US.

Second, companies, led by US multinationals, have internationalised. Many General Motors cars are made in China while Haier was making fridges in the US even before it acquired GE Appliances. In this integrated international economic order, achieving national economic goals through tariffs may be futile. Even without China’s retaliation, US tariffs will have adverse consequences for the US and its allies.

The high-value critical components of several technological products assembled in China come from Japan, Korea and Taiwan. The value added in the final assembly in China is small. When propagated upstream, the adverse impact of US tariffs may be felt more by America’s allies.