Huawei has been at the centre of the current US-China trade friction with the December arrest of
Huawei CFO Meng Wanzhou and the US government’s advising strategic partners to ban Huawei 5G equipment due to security concerns. Last week, US president Donald Trump made an executive order committing the US to a national emergency on information security that saw the Department of Commerce add Huawei and 70 affiliates to a list of national security threats.
Google responded today, freezing Huawei smartphones' access to certain Google apps. Existing users will receive security fixes and access to some apps, Huawei users may be excluded entirely when the new Android operating system is rolled out later this year. In addition, Qualcomm, Xilinx and Broadcom will also stop supplying Huawei with hardware, hampering Huawei’s ability to deploy 5G internationally. This is effectively the starting signal of a technology Cold War. The Chinese government has still not retaliated for the actions against Huawei, but we expect its response to be proportional.
Global supply chain under attack
What we are witnessing is a potential reconfiguration of global trade as it has stood since World War II. The World Trade Organization has been put under pressure by Trump's threatening a US withdrawal unless WTO terms are changed; Washington also blocked judicial appointments at the WTO’s appellate body.
The upcoming G20 meeting in Osaka had a specific agenda regarding WTO and global trade but with the US-China trade war escalating, the focus is now entirely on the rumoured meeting between Trump and Chinese president Xi Jinping. CPB’s estimate on world trade volume is down 3.5% since October 2018, with this marking the largest decline since 2008 as global trade slows down on worsening economic activity as well as friction from tariffs.
US companies with significant revenue exposure to Greater China (both the mainland and Hong Kong) are the ones facing the most downside risk from any further escalation of the trade war. In the very short term, Apple is a likely candidate for direct retaliation from Beijing due to the US government's Huawei ban. Apple gets around 20% of its revenue ($52 billion in FY'18) from Greater China and thus has the most nominal revenue exposure of any US company.
The table below shows the 33 companies with the largest revenue exposure to Greater China. Major corporate brands that are most likely to be exposed are highlighted in orange.
