In a world where the technology markets are more global and intertwined than ever, the dangers of a global trade war are grave. The impact could be broad, with damaging effects on the global technology supply chain.
On Nov. 3, the Federal Reserve embarked on an ambitious and controversial policy to stoke the US economy, announcing its intention to pump $600 billion into the system. (See the Fed statement here.)
The initial market reaction to this policy (much of which was anticipated and built into trading prior to the announcement) has been a weaker US dollar. A weak dollar has the potential to make US goods more attractive abroad, stemming the flow of manufacturing jobs overseas and making overseas goods more expensive. Many US trading partners are not happy about this.
Trade tensions already run high. At a recent meeting of the G20 economic powers, US Treasury Secretary Timothy Geithner suggested some measures to bring trade deficits under control, but he was largely rebuffed by the international crowd, most notably China, which called Geithnerís proposal to target trade deficits wrong.
China has also escalated its rhetoric and issued negative comments on the Fedís recent actions. "If the domestic policy is optimal policy for the United States alone, but at the same time it is not an optimal policy for the world, it may bring a lot of negative impact to the world," said Chinaís Central Bank head, Zhou Xiaochuan, in a BBC news report.
At the same time, new legislation in the US House of Representatives to impose more strict trade rules is awaiting the new Congress, which is ready to take advantage of the populist backlash against Chinese manufacturing growth. Technology executives are most certainly monitoring this situation closely. Itís a double-edged sword. Even though a weak-dollar action such as that initiated by the Fed is designed to boost the US economy, the fact is that the major portion of technology sales these days is international, and the US market has become less important.
For example, in its fiscal year ended in 2010, Cisco Systems Inc. (Nasdaq: CSCO) announced that its most robust growth was coming in the Asia/Pacific region, which was growing at a 17 percent rate. International sales at Cisco are approaching 50 percent of total revenues. IBM Corp. (NYSE: IBM), one of the largest global technology products and services organizations, sells more product abroad than it does in the US.
Combine the robust growth of global and emerging markets along with the global nature of the supply chain, and you can see how a trade war would be a problem.
Apple Inc. (Nasdaq: AAPL)ís iPhone and iPad products are a great example. Held up as the gold standard of technological product success, they are designed and marketed from the US, with most production taking place overseas. Apple clearly creates jobs and value everywhere in the world. What would happen to Appleís products if Asian manufacturing costs escalated, or were disrupted by trade barriers?
The fact is that politicians often attempt to boil trade issues down to one trend: manufacturing jobs moving increasingly from developed economies to emerging economies. But itís more complicated than that, because the global economy has become so diverse, integrated, and sophisticated.
A trade war wonít be good for any business, no matter where itís located. Technology executives need to step up their efforts to fight the dangers of populist trade rage in the United States, urge politicians to avoid protectionist policies, and promote the concept of global growth.