Mark Elsner Director of Advisory
Impact of US-China trade war on electronics industry
U.S. President Donald Trump made tackling trade imbalances the central platform of a broader ‘America First’ strategic effort intended to protect American industry from Chinese competition. China and the U.S. are each other’s largest trade partners, trading around 635 billion dollars of goods in 2017. The U.S. was particularly anxious about the build-up of Chinese tech capabilities and used tariffs to target key strategic industries including aerospace manufacturing, information and communication technology, and machinery.
In 2018 Trump’s administration imposed several rounds of tariffs on Chinese goods. This trade dispute between the two world’s largest economies has created uncertainty in global financial markets and presents a challenge for U.S. tech companies importing and exporting to China. Objective
To provide guidance to the client’s board of directors as to the potential vulnerabilities and scale of exposure of the company’s assets in China. With the intention of better informing their investment decisions and forward-looking strategy, we delivered a detailed report and high-level briefing for senior leadership and the board.
Core Risk Assessment and Scenario Planning: Oxford Analytica provided the client with a detailed analysis of the current political and economic landscape, to provide context to the tariff dispute. As part of this analysis, we identified several key risk categories and provided estimates for both the likelihood and severity of impact. These included issues such as: retaliatory tariffs, the discriminatory application of regulations, capital controls, customs delays, and political violence. The report also provided specific sector analysis and implications for U.S.-based technology companies, including the retaliatory options available to China.
Stress testing: as part of the risk report we provided the client with an estimate of their annual loss due to political risk, based on their asset exposure in China, and highlighted the key downside risks to their operations and investments. Utilising our Value at Political Risk (VAPOR) system, which combines historical data on political risk losses with analyst estimates of political risk event frequency, we modelled expected losses under both a baseline and adverse scenario, to capture the probable range of outcomes.
Stakeholder analysis: finally, we provided a stakeholder mapping of key regulatory and governmental figures in China and the U.S. that exert a significant influence on the prospects for the trade dispute, informing the client of which critical decision-makers they should stay closely monitoring.
Executive leadership briefing: As part of the engagement we distilled the findings of the detailed report into a high-level briefing that incorporated both key takeaways and additional insights from our China analyst team. The briefing was used to provide senior leadership with concrete operational insights that could be used to directly mitigate their exposure in China.
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