Even though trade tensions between the U.S. and China have been heating up lately, the increasing tariffs from both sides “will have no impact on the real heart of the problem,” says Bill Holstein, author of "The New Art of War: China's Deep Strategy Inside the United States.”
Last week, President Trump increased tariffs on about $200 billion worth of Chinese imports to 25% from 10%, and China retaliated with its own tariffs on $60 billion worth of U.S. goods effective June 1.
But for Holstein, the “real heart of the problem” is about technology.
“The Chinese government is orchestrating a massive campaign to steal and acquire technology in this country either through electronic means or by human penetration of our institutions and companies, and they’re developing that technology faster than we can,” he said on Yahoo Finance’s The First Trade. This, in turn, “undercuts our global order, our aspirations for the world.”
One tech company that should be worried, according to Holstein, is Apple. Recently, a report from Wedbush Securities by Daniel Ives and Strecker Back argued that the cost of making iPhones could increase by 2% to 3% as a result of the tariffs.
Apple is in a “tough spot because almost all their iPhone production is in China so the Chinese competitors are emerging and undercutting Apple’s premium in that market,” explained Holstein. “They don’t have a good Plan B.”
To earn back the same profit on each iPhone sold, Apple would then need to increase iPhone prices by a proportionate amount to the tariffs. The new Trump tariff could add about $160 to the cost of a Chinese-made iPhone XS, according to a report by Morgan Stanley.
The firm also estimated that Apple's earnings could decrease by about $3 a share in the 2020 fiscal year if the company were to absorb the cost of the tariffs.
But even so, Holstein says, American companies should continue to do business with China because there haven’t been any “major new obstacles erected.”
“This is one of the ironies. On the one hand, we’re engaged in a technology war, at the same time we’re deeply embedded with China,” he said. “We’re embedded together economically. People who talk about decoupling the two economies are walking in fantasy land. It’s just not going to happen.”