Research by the Stenn Group finds that a UK business could take a $3.93m hit due to the escalating tension between the two countries

The ongoing US-China trade war and talks delays could cost small and medium-sized businesses as much as $750bn, according to one attempt to quantify its scale.

The figures, published by trade finance provider Stenn Group, come as US president Donald Trump’s moves against social media apps TikTok and WeChat, coupled with further restrictions on telecoms group Huawei announced on 17 August, indicate the economic tensions between the two countries are unlikely to abate anytime soon.

Neil Campling, the head of technology, media and telecoms stocks at Mirabaud Securities, said in a note on 18 August that the intellectual property war between the US and China, particularly in the field of semiconductors and mobile-phone chips, had “reached the point of no return”.

Also released on 18 August, the Stenn survey polled 706 senior decision makers at medium-sized businesses across the UK, US and Chinese markets, and took place at the end of 2019.

According to Stenn’s figures, UK firms have reported a bigger hit to their bottom lines than their US counterparts — British firms put the cost at $3.9m on average, while US business leaders said $3.7m.

To gauge the scale of the hit across the whole economy, Stenn totted those figures up as if every medium and large-sized firm in the UK and US — more than 200,700 firms in all — suffered those same average costs. That calculation leads to figures of $170.1bn for the UK and $583bn for the US.
Worst-hit, however, were the Chinese firms in the survey, who said the tariffs would cost them $4.46m each on average. Almost half of them (48%) said their operating costs would increase and more than half (56%) said their supply-chains had been hit.

In the UK, 21% of businesses said that their operating costs had risen; and 30% reported having seen a reduction in business. In the US, those figures were 40% and 26%. In both countries, only 9% of the business leaders said their firm was benefiting from the ongoing tensions.
The research also found that 35% of leaders were making “long-term strategic changes to their business” in order to protect themselves from the effects of the trade war and a possible recession; a third said they were switching suppliers to outside of China. The proportion was similar in the US.

More recent consensus appears to dovetail with the views found in Stenn’s survey. Fund managers overseeing a combined $490bn collectively judge the trade war as the second-biggest risk to the global economy; it was cited by 19% of them in Bank of America’s regular monthly survey as the largest threat, behind a second wave of Covid-19 on 35%.

That survey, published on 18 August, also showed the rising US-China tensions had come much more into the foreground in the past few weeks. In July, only just over 5% of Bank of America's respondents said it was the top tail-risk, while well over half of them were preoccupied by a potential second wave of the virus.

With the US election due in November, commentators do not see any quick resolution for the tensions. Milan Cutkovic, a market analyst at AxiCorp, said in a note on 18 August: “Market participants are carefully monitoring the rising geopolitical tensions. The US has announced further restrictions against the Chinese tech giant Huawei yesterday, and it is only a matter of time until Beijing will see itself forced to take countermeasures.

“This in return will likely prompt US President Trump to ramp up the confrontation with China, ahead of the US Presidential election in November.”At Mirabaud, Campling said that a trend of “increasing Chinese-backed investments in the US”, particularly in the semiconductor industry, lay behind concerns that led to the Huawei chip technology ban. But he added that both Huawei and China have been quickly building their domestic capabilities in integrated circuitboards in recent years, and the US move is unlikely to hobble the firm.

Campling said: “[Huawei] has been stockpiling components for months and has surged to become the #1 smartphone manufacturer in the world... despite previous US sanctions and policies, loopholes and some temporary permissions, Huawei has been able to continue without significant effect.

“China cannot build a total, comprehensive domestic supply chain and industry overnight, but it is moving fast. The Integrated Circuit industry in China grew 40% year-on-year in 2018 and accounted for all of the global IC growth in 2018. There are already 23 new China 12” IC fabs in production. How quickly they come on stream and ramp volume production is difficult to track, but the groundwork has certainly been laid.”

“No resolution will come until after the US presidential election in November,” said Kerstin Braun, president of Stenn Group, in a statement. “Any phase two deal will be long-awaited good news for global trade, which took a hit from the tariff war in 2019 to the tune of $420bn in lost revenue for exporters.”

She added: “For businesses, it will help to provide some relief at a time when firms are seriously struggling to deal with the financial impact of Covid-19.”

Source: Financial News

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