Big Tech has a lot to lose in the Trump-Xi Jinping talks

The trade dispute between the United States and China has disrupted a lot companies. The stakes for tech are particularly high. “Everything in the trade war is hurting us as well as the Chinese,” said Matt Gold, a law professor at Fordham University and former trade negotiator.Most experts don’t expect a formal trade agreement to come out of the meeting, though Treasury Secretary Steven Mnuchin said in a Wednesday interview with CNBC that he thinks there is “a path to complete this.” Whether or not the trade dispute can be resolved has important implications for many US companies’ abilities to continue making or selling products in China.Here are some of the tech companies likely to be monitoring the meeting:China has long been a hub for manufacturing American goods. But with the trade war dragging on, Apple (AAPL) and a number of other tech companies, including Google and Nintendo, have begun to consider shifting production out of China. Relocating manufacturing to elsewhere in Southeast Asia would help these companies avoid tariffs on Chinese-made goods that risk harming their ability to turn a profit, and could also prevent higher prices for consumers. Apple last week asked its major suppliers to explore the costs of moving some production from China to places like India and Vietnam, according to a Nikkei report. But China has better infrastructure to support manufacturing than those countries, making shifting manufacturing elsewhere costly and difficult. It’s an even greater challenge for technology companies than for, say, apparel companies who don’t have to rely on the same kind of highly trained workforce.”This is not making shirts, this is very sophisticated,” said Mehdi Hosseini, an analyst with Susquehanna International Group. “It requires dedicated labor and a very extensive supply chain. If electronics companies had to move production outside of China, it would involve significant costs for training workforce and building new infrastructure.” Last month, the United States hiked import tariffs to 25% on $200 billion in Chinese goods, including electronic equipment. And now Trump says he is considering applying a 10% to 25% tariff to an additional $300 billion in Chinese exports.Apple, Dell Technologies (DELL) and more than half a dozen other tech companies wrote to the Trump administration last week asking to be exempted from that extension of tariffs. The Consumer Technology Association estimates the tariff would raise the average cost of cell phones by $70 and the average cost of laptops by $120.For these companies, the G20 meeting represents a chance to see Trump relax his stance on taxing Chinese exports and to put the brakes on expensive potential supply chain shifts. “We hope to see a deal and encourage the US and Chinese governments to continue a dialogue to resolve outstanding issues,” a Dell Technologies spokesperson said. At the same time that the United States and China have ratcheted up the trade war with tit-for-tat tariffs and other retaliatory measures, the White House has raised concerns about the safety of producing goods in China because of intellectual property violations.That’s among the reasons tech companies, including Google (GOOG), might be looking to move manufacturing or assembly of sensitive products like motherboards out of China. While a trade resolution would be unlikely to dispel legitimate security concerns, Hosseini said he thinks it might take the pressure off of tech companies to respond by leaving China altogether. “There are companies that have been in China since the 1980s without any problems with security,” Hossseini said. “Tech companies have already been doing things to safeguard their data and production. Some of these concerns, in my opinion, are just negotiating tactics.” The trade war has also coincided with the US government’s implementation of an export ban against telecom equipment giant Huawei and five other Chinese enterprises.The move threatens to topple Huawei’s spot as the second largest smartphone seller in the world because it relies on products from US companies — Android software from Google, chips from Intel and Broadcomm — to make cell phones. Huawei sued the US government in March saying the export ban singled it out unfairly, and the company has downgraded its revenue expectations for 2019 and 2020 by $30 billion. Technically, trade negotiations and national security measures like the export ban are separate. But Trump has said he might consider concessions for Huawei as part of a trade deal with China. However, such a deal could set a dangerous precedent, according to Gold. “Both the President’s timing of certain actions and hints that the President has made expressly have raised fears that he’s offering the Chinese a compromise of our national security enforcement in exchange for the kinds of concessions that he can boast about on the campaign trail,” Gold said. “If we put legitimate enforcement of our national security laws on the table in trade negotiation, we are inviting our adversaries to demand we drop national security enforcement at future trade negotiation tables.”Huawei isn’t the only one affected by the export ban. American tech companies including Micron (MICR), Intel and Qualcomm (QCOM) also count on sales of smartphone components and software to the Chinese company. Huawei was Micron’s top customer prior to the ban. Revenue for Micron’s mobile business unit was down 33% from the prior year due in part to lowered shipments to Huawei, Micron Chief Financial Officer David Zinsner said during the company’s third quarter earnings call Tuesday.Micron did say that in recent weeks, the company found that it can legally continue to sell certain products to Huawei and resumed those shipments. But questions over whether restrictions will be tightened continues to create challenges for the company. “There is obviously considerable uncertainty here,” Micron CEO Sanjay Mehrota said Tuesday. And Susquehanna International Group’s Hosseini said that uncertainty extends beyond Micron. “There appears to be some gray area where companies may be able to ship to Huawei through third party distributors, but it’s not clear,” Hosseini said, adding that he doesn’t expect the confusion to be resolved by the Trump-Xi meeting this weekend. “I do expect some sort of a handshake for window dressing, but not a clear resolution with details coming out,” Hosseini said.