RPT-BREAKINGVIEWS-US trade war tangles tanks and t-shirts

By Katrina Hamlin

HONG KONG, May 27 (Reuters Breakingviews) - Washington’s trade war is in danger of tangling tanks and t-shirts. President Donald Trump said on Sunday that tariffs are aimed at encouraging domestic production of more sophisticated products, not shirts and sneakers. But his scrutiny of electronics supply chains extends to consumer gadgets like smartphones and PCs, which have more in common with the latter.

Those devices are in the firing line as part of a Section 232 investigation into semiconductors, which encompasses products that use chips. The goal is to gauge any negative impact of imports on U.S. national security, such as dependencies on foreign suppliers.

Including the end products makes some sense from that perspective. U.S. chip imports were worth $82 billion last year, while computer shipments into the country reached $100 billion. Nearly 80% of laptop and tablet imports currently come from China, according to S&P.

But the bottom line for companies manufacturing commoditised devices calls into question why Trump should covet having their factories onshore more than those that make t-shirts and shoes. Take $15 billion Lenovo 0992.HK, which last Thursday reported annual net income of $1.4 billion. That gave the world’s largest laptop maker a net margin of just 2%, lower than Yue Yuen 0551.HK, the world’s largest manufacturer of branded sports shoes, which clocked 4.8% last year.

From an economic standpoint, having these production lines stateside may ultimately be less worthwhile than cultivating the upper end of the electronics value chain – which the U.S. already has at home. Microsoft MSFT.O and Google parent Alphabet’s GOOGL.O earnings, for example, were equivalent to around a third of sales last year, per Visible Alpha. The figure for Apple AAPL.O was 25%, though suppliers such as GoerTek 002241.SZ and Luxshare Precision 002475.SZ, which make their iPhones and AirPods, eked out net margins of under 5%.

True, shifting supply chains would bring more manufacturing jobs to the U.S. In 2024, only 15% of Lenovo’s 69,500 staff were based in the Americas, while 60% sat in China, according to its annual sustainability report. But that would either further shrink an already emaciated bottom line or inflate prices. Moving laptop production to the U.S. could increase labour costs to around five times current levels, according to UBS analysts. The figure could be higher for smartphones, whose production is even harder to automate.

Trump might find it pays to file his devices along with his sneakers.

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CONTEXT NEWS

U.S. tariff policy aims to promote domestic production of tanks and technology products, not sneakers and t-shirts, President Donald Trump said on May 25.

Laptop-maker Lenovo on May 22 said its net income grew 37% to $1.4 billion in the year to March 2024 compared with the previous 12 months. Revenue grew 21% to $69 billion. The company’s net margin was 2%.