US Tech Giants Grapple with China's Slowing Demand and Geopolitical Tensions

US tech giants, including Tesla and Apple, are feeling the impact of China's slowing demand and escalating geopolitical tensions on their financial results. Trade tensions between the US and China continue to mount, with negotiators set to meet on Friday to discuss a potential deal.

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US Tech Giants Grapple with China's Slowing Demand and Geopolitical Tensions

US Tech Giants Grapple with China's Slowing Demand and Geopolitical Tensions

US tech giants, including Tesla and Apple, are feeling the impact of China's slowing demand and escalating geopolitical tensions on their financial results. Experts predict a '2 tech stack divide' and decoupling of technology-related supply chains between the United States and China as trade frictions continue to mount.

Why this matters: The ongoing trade tensions and potential decoupling of tech supply chains could have far-reaching consequences for the global economy, impacting not only the tech industry but also other sectors that rely on international trade. As the world's two largest economies navigate this complex situation, the outcome will likely shape the future of global trade and commerce.

The ongoing trade tensions are taking a toll on US markets, with the Dow Jones Industrial Average falling 138.97 points, or 0.54%, to 25,828.36 on Thursday. The S&P 500 lost 8.7 points, or 0.30%, to 2,870.72, while the Nasdaq Composite dropped 32.73 points, or 0.41%, to 7,910.59. Investors remain cautious as negotiators from both countries prepare to meet on Friday to continue trade talks.

President Donald Trump stated that he received a "beautiful letter" from Chinese President Xi Jinping, asking to work together to resolve the trade issues. However, the US has threatened to raise tariffs on $200 billion of Chinese goods from 10% to 25% at 12:01 a.m. EDT (0400 GMT) on Friday if a deal is not reached. China has asked the US to meet it halfway to stave off the tariff hike, while Trump has insisted that China broke the deal.

Tim Ghriskey, chief investment strategist at Inverness Counsel in New York, warned, "What the market fears deep down is an all-out trade war with no hope for resolution." Joseph Quinlan, head of market strategy for Merrill and Bank of America Private Bank in New York, highlighted the potential knock-on effects, including "disruptions to global supply chains, the decline in investor confidence, business confidence, and consumer confidence."

The trend of supply chain businesses moving out of China amid geopolitical tensions, which began in 2018, has gathered pace, with even Chinese firms relocating to manage business risks. Southeast and South Asian countries, such as Malaysia, India, Thailand, Vietnam, and Indonesia, are benefiting from this trend due to their proximity to China and friendly foreign investment policies.

DHL Express, a global logistics company, expects its Asia-Pacific business to outperform other regions in 2024, driven by volume recovery in Southeast Asia. The company is investing heavily in the region, with plans to spend around €750 million in Asia-Pacific, driven by booming e-commerce. Ken Lee, CEO at DHL Express Asia-Pacific, stated, "Asia-Pacific is probably the most promising region because we see quite a recovery in the volumes moving forward."

As US tech giants navigate the complex geopolitical landscape and the impact of China's slowing demand, the future remains uncertain. Blake Gwinn, head of front-end rates strategy at NatWest Markets in Stamford, Connecticut, cautioned, "I don't think we are going to get an all-clear sign on Friday. This could keep rolling along for weeks or months." The decoupling of technology-related supply chains between the US and China appears to be an inevitable consequence of the ongoing trade tensions, forcing companies to adapt and explore new opportunities in the Asia-Pacific region.

Key Takeaways

  • US tech giants like Tesla and Apple are feeling the impact of China's slowing demand and trade tensions.
  • Experts predict a "2 tech stack divide" and decoupling of US-China tech supply chains.
  • Trade tensions are affecting US markets, with Dow Jones, S&P 500, and Nasdaq Composite all falling.
  • Companies are relocating from China to Southeast and South Asian countries to manage business risks.
  • The decoupling of US-China tech supply chains appears inevitable, forcing companies to adapt and explore new opportunities.