Credit rating agency S&P Global Ratings sees that the most vulnerable companies to trade barriers between the China and the US are those with a heavy reliance on the former’s integrated technology production infrastructure and the latter as a major end market.
Credit analyst Clifford Kurz highlights: “Most companies have plans to expand production outside of China. Understanding where production is shifting to elsewhere in Asia is important to predicting the consequences of reciprocal tariffs on countries outside of China.”
He singles out Vietnam and India, both hot smartphone and personal computer (PC) assembly markets thanks to low labour costs, as most at risk of supply chain-disruptive tariffs.
Based on findings from a data-driven report to display which technology sub-sectors face the highest risks, which companies have the highest revenue and profit contribution from the US and where production is primarily located, S&P Global Ratings finds that tech giant Apple, as well as its key suppliers, could be the most unsettled, given their production reliance on China.
Additionally, nearly a fifth of all final assembly of Apple products come off the factory floors in India before shipping to the US.
Other companies at risk include Dell Technologies, HP Inc and Lenovo Group, whose PC sales in the US contribute between 15% to 20% of operating profit.
See also: US, China officials agree on plan to ramp down trade tensions
Advanced chipmakers, on the other hand, are less vulnerable, given their high bargaining power and their growing proportion of revenues and profits from artificial intelligence (AI) driven.
Furthermore, US-bound AI servers assembled in Mexico are presently exempt from new tariffs under the US-Mexico-Canada agreement, which took effect in July 2020.
AI chipmarkers are also less exposed to China’s chip restriction risk.
See also: Fitch downgrades APAC tech sector to ‘deteriorating’ from ‘neutral’ on tariff risks
While industry leader Nvidia’s chip revenues account for more than 90% of all generative AI chip sales globally, China currently takes up a much smaller portion of Nvidia's data center revenue than in the past following years of restrictions.
Overall, the credit rating agency notes that it has stable outlooks on ratings of the major players that rely on Asia-based supply chains.
“While shifting supply chains will be costly, many have already diversified their production enough to offset some of the tariff risk related to China. Or at least enough such that the US market can be supplied by non-China production,” says Kurz.
Companies which have enough dominance in their niches to be able to pass on higher costs to buyers, he adds, or sufficient financial buffers, should be able to mitigate negative effects coming from changes in costs due to tariffs.
Kurz, citing Lenovo as an example, notes that the company will only see a downgrade if earnings before interest, taxes, depreciation and amortisation (ebitda) decreases by 30%.
