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By accessing the restricted area I confirm my agreement with‚ and understanding of‚ the following terms of use and the legal provisions. If I do not agree to the terms and legal conditions‚ I must not access this website or any pages thereof. I acknowledge that access to the information contained on this website is available to "Qualified Investors" only as defined below. A private individual or legal representative or any other party without this qualification should not enter this website.

By accessing this website or any of its pages‚ I confirm that I am a qualified investor in accordance with Art 10.3 CISA.

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I understand the information contained in this website is not directed at, nor is it intended for distribution to, or use by, persons in any jurisdiction in which the dissemination of such investment related information is not permitted. I also understand that the information contained in this site is not directed to any party that may be defined as a ‘retail investor’ by the home regulator of the country in which the website is being accessed. I understand that the information or opinions contained herein should not be construed as an offer to sell or the solicitation of an offer to buy any investment product nor shall any such investment products or services be offered or sold to any person in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful. Fidelity has expressed its own views and opinions on this website, and these may change and there is no obligation to update them. Nothing in this website should be construed as investment, tax, legal or other advice. The information contained herein is subject to change without notice.

I understand the information contained in this website is not directed at, nor is it intended for distribution to, or use by, persons in any jurisdiction in which the dissemination of such investment related information is not permitted. I also understand that the information contained in this site is not directed to any party that may be defined as a ‘retail investor’ by the home regulator of the country in which the website is being accessed. I understand that the information or opinions contained herein should not be construed as an offer to sell or the solicitation of an offer to buy any investment product nor shall any such investment products or services be offered or sold to any person in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful. Fidelity has expressed its own views and opinions on this website, and these may change and there is no obligation to update them. Nothing in this website should be construed as investment, tax, legal or other advice. The information contained herein is subject to change without notice.

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Riconosco che le informazioni contenute in questo sito web non sono dirette né sono destinate alla distribuzione o all’uso da parte di soggetti in qualsiasi giurisdizione in cui la diffusione di tali informazioni relative allinvestimento non è consentita. Riconosco inoltre che le informazioni contenute in questo sito web non sono dirette a soggetti che potrebbero essere definiti "investitori retail" dall'autorità di vigilanza nazionale del paese dal quale si accede al sito stesso. Riconosco che le informazioni o le opinioni contenute in questo sito web non devono essere interpretate come un'offerta di vendita o come la sollecitazione di un'offerta di acquisto di un prodotto o un servizio di investimento, né tali prodotti o servizi di investimento possono essere offerti o venduti a soggetti di giurisdizioni nelle quali tale offerta, sollecitazione, acquisto o vendita sarebbero illegali. Questo sito web contiene giudizi e opinioni espressi da Fidelity, che sono soggetti a modifica e rispetto ai quali non sussiste alcun obbligo di aggiornamento. Nulla di quanto contenuto in questo sito web va considerato come una consulenza di investimento, fiscale, legale o di altra natura. Le informazioni qui riportate sono soggette a modifica senza preavviso.

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I confirm that I am accessing this website for the purpose of acquiring information as, or for, an Institutional Investor (a corporate or other non-retail investor acting for their own account).

I understand the information contained in this website is not directed at, nor is it intended for distribution to, or use by, persons in any jurisdiction in which the dissemination of such investment related information is not permitted. I also understand that the information contained in this site is not directed to any party that may be defined as a ‘retail investor’ by the home regulator of the country in which the website is being accessed. I understand that the information or opinions contained herein should not be construed as an offer to sell or the solicitation of an offer to buy any investment product nor shall any such investment products or services be offered or sold to any person in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful. Fidelity has expressed its own views and opinions on this website, and these may change and there is no obligation to update them. Nothing in this website should be construed as investment, tax, legal or other advice. The information contained herein is subject to change without notice.

This website has been issued by FIL Fund Management Limited, a Bermuda company licensed to conduct investment business by the Bermuda Monetary Authority. Neither FIL Fund Management Limited, its parent company FIL Limited, nor any of their group companies or affiliates makes or gives any warranty or representation that any information contained on this website is accurate, complete, or fit for any particular purpose.

I acknowledge that neither FIL Fund Management Limited, FIL Limited, nor any of their group companies or affiliates will have any liability for any losses arising directly or indirectly from any information accessed from this website. By accepting this representation I also confirm my agreement to the website Terms and Conditions, which I have read and understood.

Please note that FIL Fund Management Limited is not licensed by the Liechtenstein Financial Market Authority (“FMA”) and is not subject to the supervision of the FMA.

Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited, a company existing under the laws of Bermuda.

If the above representation is correct, please click 'I agree' below to continue to the site.

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Hiermit bestätige ich, dass ich diese Website zur Informationsbeschaffung als institutioneller Anleger (ein auf eigene Rechnung handelndes Unternehmen oder ein anderer nicht als Privatanleger geltender Investor) bzw. für einen institutionellen Anleger besuche.

Mir ist bewusst, dass sich die Informationen auf dieser Website nicht an Personen richten bzw. für sie bestimmt sind, in deren Land die Verbreitung solcher anlagebezogenen Informationen nicht erlaubt ist. Mir ist ebenfalls bewusst, dass sich die Informationen auf dieser Website nicht an Adressaten richtet, die von der Aufsichtsbehörde in dem Land, von dem aus die Website besucht wird, möglicherweise als „Privatanleger“ klassifiziert werden. Des Weiteren ist mir bewusst, dass die hier zu findenden Informationen oder Meinungen nicht als Aufforderung zum Kauf oder Verkauf eines Anlageprodukts zu verstehen sind. Es sollen auch keine solchen Anlageprodukte oder Dienstleistungen Personen angeboten oder verkauft werden, in deren Land ein entsprechendes Angebot, eine Aufforderung, ein Erwerb oder Verkauf ungesetzlich wäre. Fidelity äußert auf dieser Website seine eigenen Ansichten und Meinungen, die sich jederzeit ändern können, ohne dass eine Verpflichtung zur Aktualisierung besteht. Kein Inhalt dieser Website ist als Beratung in Bezug auf Geldanlagen, Steuern, rechtliche oder sonstige Aspekte zu verstehen. Die hierin enthaltenen Informationen können sich ohne entsprechende Mitteilung jederzeit ändern.

Diese Website wurde von FIL Fund Management Limited eingerichtet, einem Unternehmen mit Sitz auf bzw. nach dem Recht der Bermuda-Inseln, das über eine Genehmigung der Bermuda Monetary Authority zur Ausübung von Investmenttätigkeiten verfügt. Weder FIL Fund Management Limited noch sein Mutterunternehmen FIL Limited oder irgendein anderes Konzernunternehmen oder verbundenes Unternehmen übernimmt die Gewähr dafür oder erklärt, dass die Informationen auf dieser Website zutreffend, vollständig oder für jedwede Zwecke geeignet sind.

Ich erkenne an, dass weder FIL Fund Management Limited noch FIL Limited oder ein anderes Konzernunternehmen bzw. verbundenes Unternehmen für etwaige Verluste haftet, die direkt oder indirekt aus einer auf dieser Website beschafften Information resultieren. Durch Annahme dieser Erklärung bestätige ich auch mein Einverständnis mit den Nutzungs- und Geschäftsbedingungen dieser Website, die ich gelesen und verstanden habe.

Fidelity International, das Fidelity International Logo und das F-Symbol sind Markenzeichen von FIL Limited, einem nach dem Recht der Bermuda-Inseln eingetragenen Unternehmen.

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Diese Website präsentiert Informationen in englischer und deutscher Sprache. Als professioneller Anleger akzeptiere ich hiermit, Informationen in mehr als einer Sprache zu erhalten.

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Tech and Trump’s China tariffs: Counting the costs to global supply chains and consumer demand

Unless a deal can be reached soon, perhaps at next week's G20 meeting, America’s ban on Huawei and the looming third round of US tariffs on goods from China threaten to reshape global tech supply chains and weigh on demand for consumer products like smartphones. Fidelity’s global team of tech analysts counts the costs.

18 June 2019

REUTERS/Jonathan Ernst
JONATHAN ERNST

All eyes will be on the G20 meeting in Osaka next week to see whether Donald Trump and China’s Xi Jinping will strike a deal that de-escalates their intensifying trade war. The global tech industry will be watching particularly closely. 

The recent US ban on American companies doing business with China’s Huawei and the looming threat of another and more serious round of tariffs are a one-two punch for the industry, and not just in China and the US. In our view, these measures will reverberate throughout the entire tech supply chain, which has become increasingly global and interlinked. These links could now be put to the test, unless Trump and Xi can agree a ceasefire.

The following is a case study of how the trade wars are disrupting not just bilateral trade but global markets and supply chains. The tech industry is a good example precisely because it is so globalised, with interwoven supplier relationships, and has figured so prominently in the current debates. 

Tariffs round three

If implemented, the next round of tariffs proposed by the Trump administration will have a much greater impact on the global supply chain than previous rounds. At stake are tariffs of up to 25 per cent targeting 3,800 products and representing around US$300 billion in US imports from China that weren’t covered in the previous two rounds of tariffs. US trade officials are conducting public consultation on the proposal that will run until June 25 before moving forward.  From a tech industry perspective, by including smartphones and PCs, we think these new tariffs would push up prices for consumers and lead to a falloff in demand. 

Source: IDC, Fidelity International, June 2019

Taking aim at Huawei 

At the same time, the decision last month to place Huawei on the ‘entity list’ effectively bans US firms from doing business with what is one of the biggest global players across product categories ranging from servers to smartphones. Huawei accounts for around eight per cent of semiconductor sales globally, is the largest network equipment supplier in the world (with around 30 per cent market share) and second largest smartphone supplier (18 per cent market share). It also has a burgeoning PC/server business and a rapidly growing cloud infrastructure division in China. All of these operations require at least one critical component that can only be sourced from the US. Hence, the ban presents a systemic risk to Huawei’s business. This is a major event. Not just for Huawei and China, but for the entire global tech industry, with its complex web of interdependence.

In a recent interview with CNBC, Trump suggested the US approach to Huawei could be part of its broader trade negotiations with China, indicating that the issue could be on the table for discussion at the G20. There are two schools of thought on this. One is that the Huawei ban and subsequent issuance of a temporary licence is a warning signal to China that the US has more up its sleeve than simply tariffs. It is similar to the ZTE ban last year, which was eventually reversed and which Trump claimed as a big political win. Alternatively, the ferocity with which the US has gone after Huawei (long before the latest action) includes bringing non-US companies under the ban’s umbrella. Some observers see this as a sign the US intends to effectively drive Huawei out of business. Although a private company, Huawei is very much a national champion in technology in China and is critical to the rollout of the 5G network.

Supply chain impact: localisation in China

Regardless of the outcome of trade negotiations, Huawei and China will step up their efforts to localise components, including internalising the smartphone operating system, as well as key components such as certain microchips.

However, China Inc.’s ability to fully localise supply faces significant challenges. Recent decisions by some key American suppliers to stop selling to Huawei could limit its ability to develop all semiconductors for future generations, given they are based on US intellectual property. Similar electronic design automation (EDA) tools from US firms are also likely to be restricted.

One worst-case scenario is a ‘Tech Cold War’, leading to separate technology ecosystems, with China developing its own tech stack, with different standards to the Western world. This would effectively cut off non-Chinese companies from supplying or selling into the Chinese market, which will be the largest market in the world for many products, if it isn’t already.

Smartphones and notebooks in focus

Previous rounds of US tariffs had a minimal impact on the global tech supply chain, given they mainly affected servers and desktop PCs, which tend to be relatively smaller volume and higher value. Take servers, where global supply is approximately 11 million units, with prices ranging from $3,000 to $7,000. The low volume, high value nature of the category allowed the supply chain to relocate production relatively easily, as the additional costs from transport, customs and lower efficiency were still easily outweighed by the tariff.

The next round of tariffs could have a much greater impact, as it would include smartphones and notebooks. These are much higher volume and lower value products. In the case of smartphones, global supply is 1.4 billion units with prices ranging from around $300 to $1,500 per phone. Hence, the additional costs from relocation could be greater than the tariffs. Additionally, being a consumer product, demand and production are much more seasonal; this requires a flexible labour force, which can be difficult to source.

Consumer cost impact scenarios 

What does all of this mean for end consumers? We calculate that a 25 per cent tariff levied on US smartphone imports has the potential to increase retail prices by up to 15 to 20 per cent, with the tariffs implemented on the cost of goods sold. However, the final price increase would probably vary widely, ultimately depending on how much each company chooses to pass on to end consumers. 

Companies with wider hardware margins are better positioned to mitigate price hikes by absorbing some of the higher costs, but others with narrow margins may be forced to pass effectively all the tariff increases on to end consumers. We expect this would impact demand in the US for companies with Chinese tariff exposure. Even at the high end of the market, recent new model launch cycles have shown that smartphone demand is more price elastic than previously thought. In short, consumers and tech companies are both expected to feel the pain from the next round of trade tariffs - unless China and the US can strike a deal. 

The value of investments and the income from them can go down as well as up so you may get back less than you invest. Past performance is not a reliable indicator of future results.

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Fidelity makes no representations that the contents are appropriate for use in all locations or that the transactions or services discussed are available or appropriate for sale or use in all jurisdictions or countries or by all investors or counterparties.

Investors should also note that the views expressed may no longer be current and may have already been acted upon by Fidelity. They are valid only as of the date indicated and are subject to change without notice.

This material was created by Fidelity International. It must not be reproduced or circulated to any other party without prior permission of Fidelity.

This communication is not directed at, and must not be acted on by persons inside the United States and is otherwise only directed at persons residing in jurisdictions where the relevant funds are authorised for distribution or where no such authorisation is required. Fidelity is not authorised to manage or distribute investment funds or products in, or to provide investment management or advisory services to persons resident in, mainland China. All persons and entities accessing the information do so on their own initiative and are responsible for compliance with applicable local laws and regulations and should consult their professional advisers. This content may contain materials from third-parties which are supplied by companies that are not affiliated with any Fidelity entity (Third-Party Content). Fidelity has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content.

Fidelity International refers to the group of companies which form the global investment management organisation that provides products and services in designated jurisdictions outside of North America Fidelity, Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited. Fidelity only offers information on products and services and does not provide investment advice personal recommendations based on individual circumstances.

Issued in Europe: Issued by FIL Investments International (FCA registered number 122170) a firm authorised and regulated by the Financial Conduct Authority, FIL (Luxembourg) S.A., authorised and supervised by the CSSF (Commission de Surveillance du Secteur Financier) and FIL Investment Switzerland AG, authorised and supervised by the Swiss Financial Market Supervisory Authority FINMA. For German wholesale clients issued by FIL Investment Services GmbH, Kastanienhöhe 1, 61476 Kronberg im Taunus. For German institutional clients issued by FIL Investments International – Niederlassung Frankfurt.

In Hong Kong, this content is issued by FIL Investment Management (Hong Kong) Limited and it has not been reviewed by the Securities and Future Commission. FIL Investment Management (Singapore) Limited (Co. Reg. No: 199006300E) is the legal representative of Fidelity International in Singapore. FIL Asset Management (Korea) Limited is the legal representative of Fidelity International in Korea. In Taiwan, independently operated by FIL Securities (Taiwan ) Limited, 11F, 68 Zhongxiao East Road, Section 5, Xinyi Dist., Taipei City, Taiwan 11065, R.O.C. Customer Service Number: 0800-00-9911#2.

Issued in Australia by Fidelity Responsible Entity (Australia) Limited ABN 33 148 059 009, AFSL No. 409340 (“Fidelity Australia”). This material has not been prepared specifically for Australian investors and may contain information which is not prepared in accordance with Australian law.

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