iPhone 15 sales indicate a significant drop of 4.5% compared to the iPhone 14 sales within the two weeks after its launch. Consequently, Apple’s shares fell 0.08 % following the news that there was a strong customer demand for Huawei’s new Mate 60 smartphone line.
Yet, the reasons behind this consumer behaviour are not difficult to discern, and this trend is not surprising per se. It is just the tip of the iceberg for the remainder of the looming slump.
Many attribute this dip to the struggling Chinese economy, which is still trying to recover from the Covid slump, as well as grappling with a housing crisis. To some extent, this is valid, as consumer demand has not fully rebounded to pre-pandemic times, and there is low consumer confidence due to uncertainties about future income amidst government regulatory tightening and unemployment. Also, a significant portion of the Chinese youth are now prioritising saving over spending, opting out of the demanding work culture that they have grown disillusioned with.
However, placing all the responsibility on the domestic conditions is negligent at best to the economic tension between China and the US. Chinese consumers are becoming increasingly nationalistic, reflecting tensions through consumer boycotts. Apple currently emerges as the last notable victim of many, suffering from one such activism by the Chinese patriotic mindset, exacerbated by the adversarial trade policies pursued by the US. This sentiment also extends to the diminishing appeal of US education for Chinese students, once seen as a status display. Eventually, not only economic relations but also public perceptions are troubled by the antagonistic narratives imposed from the top.
The situation raises the question of whether the so-called de-risking is doing more harm than favour. The motives behind de-risking vary – from establishing the US’ as a technological leader to reducing overreliance on China for critical goods. Many Western companies are already relocating their operations away from China, although the vast majority are still carefully considering their options. Indeed, they can’t be wrongdoing the latter, as most companies have no alternative to China – otherwise, they are subject to a much wider risk. In this reversed relocation context, whether the so-called “de-risking” poses a greater risk than it aims to mitigate is a pressing concern for countries and international trade.
Regardless of whether the US is motivated by hegemonic concerns or, as Biden claims, national security concerns in the realm of technology, it is clear that the recent efforts, such as The CHIPS and Science Act and Inflation Reduction Act, could impair the competing Chinese industries, particularly the semiconductor sector. The exodus of American investors now points to “friend-shoring” to political allies such as India, Thailand and Vietnam, “nearshoring” to countries such as Mexico and Canada to benefit from the USMCA free trade agreement, and “reshoring” for domestic production. Yet, this strategy can lead to a significant negative impact on global economic growth, even if there are no trade restrictions with third countries in Asia.
According to an IMF publication, although reshoring would be particularly detrimental to everyone, friend-shoring does not create net benefits for third countries in the long run either, as benefits from trade diversion are counterbalanced by the impact of the contractions in both China and the OECD for the countries in question in Asia. China has played a crucial role in driving trade integration in Asia, and many Asian value chains depend on China since intermediate goods pass through the country for final assembly. Also, hit by high tariffs, China purchases fewer products. Such a drop in consumption ripples through the export performance in the continent, even that of the relocated countries.
So, beyond affecting the mindset of the Chinese public towards the US, thereby influencing trade activities in various sectors, this strategy could inevitably dent global growth through other channels. It underscores that the impact on US companies goes beyond a mere change in consumer behaviour. De-risking is a vague term and, therefore, leaves some leeway in interpretation and room for policy-making, which can be employed to deceive the public and other countries in covering certain ambitions. It can still lead to de-coupling in a downward spiral – there is no limit on how much de-risking should be enough. This scenario becomes even more conceivable, especially in light of increased Chinese pressure on Taiwan, which could escalate into Western military action and sanctions.
De-risking presents its dilemmas and is, therefore, not sustainable in the long run. China is deeply integrated into the global economy and constitutes a vital part of global value chains and growth. Besides the economic competition, the framing of the issue as a national security concern generates more division not only politically and economically but also on the societal level through patriotic consumerism that hurts global trade. Market risk, therefore, is not only worsened by the deteriorated supply chains’ inability to create affordable products as well as lower trade volume but also by the shifting demand for the preferred goods. Although the political context is unlikely to change, MNCs need to prudently assess their de-risking options and navigate the distinct regulatory frameworks for their operations in the US and China to dampen the repercussions it poses.
