How will a Global Trade War Impact on Apple and Huawei Smartphones?

While the bottom may have fell out of the feature phone market last year, 2017 was a superb year for Chinese smartphone brands overall. In fact, Huawei, Oppo and Xiaomi made up three of the six smartphone brands with the biggest market share, with the former securing 10.8% of global sales across the board.

The Xiaomi brand also achieved the most marked growth of any smartphone brand last year, as it increased its own market share by a whopping 56% and saw yearly shipments totally 96 million overall.

With the recently released P20 Pro handset also having a big impact on the market, Huawei is set to lead a similar charge in 2018, while the market leaders Samsung and Apple may both see their own market shares decline marginally during the same period.

In case you hadn’t heard, however, China is becoming embroiled in a burgeoning and potentially devastating trade war with the U.S.. In this article, we’ll ask how this is likely to impact on the smartphone market and the performance of Chinese brands in particular.

Have the First Shots of the Trade War Being Impactful?

Unsurprisingly, it was the volatile Donald Trump who fired the first shots of this trade war, as he rubber stamped his protectionist policies by imposing tariffs on a host of Chinese imports. According to estimates, this will equate to a cumulative value of $50 billion, while the potential impact on the global economy may also be seismic.

As you would expect, China responded in kind, sending tremors through the financial market by implementing hefty, 25% tariffs on a range of American imports.

While this is unlikely to be conducive to any kind of global economic stability, there is no immediate concern that it will effect the lucrative smartphone market. After all, none of the 1.333 individual tariffs proposed by the U.S. include any reference to mobile devices, while China has also avoided penalising the import smartphones from North America.

This is despite the fact that some of the tariffs proposed by America and China (the latter have sanctioned 128 different U.S. imports) include raw smartphone components such as printed circuit assemblies. Although this hardly sounds like good news, there’s no evidence yet to suggest that this will drive up smartphone production costs and send retail prices spiralling.

This could yet change, however, particularly if the trade war escalates and both parties decide to impose more stringent tariffs on a wider range of imports.

What Happens if Smartphone Imports are Targeted Directly?

According to some experts, the decision to avoid placing tariffs on smartphones is two-pronged. Firstly, the value of this market is considerable, with Chinese handsets shipped to the U.S. equalling 1.69% of all exports and Apple selling around seven million iPhones in China every single year.

With this in mind, both the American and the Chinese governments would be unwise to risk a direct retaliation from the other without careful forethought and planning.

Secondly, there’s a belief that smartphones are being held back in case that trade war between the two nations worsens, which is a serious possibility given the level of posturing from the parties involved.

But what if one country does decide to place tariffs on imported smartphones? The short answer is that the base production costs of handsets in China and the U.S. (think Huawei and Apple respectively) will increase sharply, while retail prices will rise to reflect this. This will prove untenable in the case of premium handsets such as the P20 Pro and the iPhone X, potential leading to reduced sales and dwindling demand among consumers.

Remember, Apple are already struggling the meet their sales forecasts for the iPhone X, and while they had been expected to steal some market share following an expansion into the Indian market, this could be offset if they lose business (or volume) in China.

Even allowing for the discounted sale of premium handsets like the iPhone X through leading distributors such as fonehouse, Apple and similar, high end brands have little room to manoeuvre when it comes to optimising their price points.

The Last Word

While the precise impact of a trade war on the smartphone market is hard to predict, it seems to fair to surmise that everyone will lose to some degree. The global economy will certainly suffer, while consumers could also turn away from smartphone brands in China and America if prices spiral out of control.

From the sole perspective of the U.S. and China, its reasonable to presume that the latter’s exporters will suffer the most. Given the share of the American market in China’s total exports, brands such as Huawei could suffer in the short-term as they seek out new partners and destinations for their handsets.

This could dampen growth in the Chinese marketplace, and reverse the trend that began in earnest last year.

Conversely, U.S.-based Apple be the brand that misses out the most, thanks primarily to its huge volume of sales into China. With production costs of its high-end handsets already inflated, the deployment of heavy tariffs could make new iPhone models almost unsellable in the Chinese marketplace.