Technical / Dell, HP, HP Enterprise in line of fire from Trump's latest tariff announcement

Livemint : Jun 03, 2019, 01:28 PM

US President Donald Trump’s vow to impose tariffs on all goods made in Mexico will be a blow to major hardware technology companies already reeling from the US-China trade war.

Dell Technologies Inc., HP Inc. and Hewlett Packard Enterprise Co. are among the US technology companies that manufacture products in Mexico. Computers and printers made by these companies and imported into the U.S. from Mexico would face a 5% levy starting June 10, according to Trump’s decree. The White House said Thursday that the tariffs would rise as high as 25% in October if Mexico doesn’t stop the flow of migrants and asylum-seekers across the US southern border.

The US imported $25 billion worth of computers from Mexico in 2018, according to the US Census Bureau, and $2.5 billion in computer accessories. Hardware giants that have relied more on Mexican production the past two decades to take advantage of the North American Free Trade Agreement are now facing whiplash. They have already been forced to reconfigure their supply chains to contend with American duties imposed by Trump on products made in China.

For Dell, Mexico was a safe harbor to escape from the worst impacts of the US-China trade conflict. The Round Rock, Texas-based company reallocated some desktop computer production to Mexico from China months ago in response to US levies. The company also makes servers in Mexico. Now, it’s trying to figure out how to deal with the potential new tariffs.

“We are big believers in free trade," Dell spokesman Steve Gilmore said Friday in a statement. “One possibility, if this tariff goes through, is that we’ll have to raise prices. The good news is we have a global, flexible supply chain with more than 25 production facilities. This is an advantage for us that allows us to pivot very quickHP manufactures some personal computers and printers in Mexico. The company said its “diverse" global supply chain would help reduce the risks of the tariffs.

“We share industry concerns that broad-based tariffs are putting consumers on the front lines of a trade war by increasing the cost of electronics," an HP spokesman said. “We are actively monitoring the situation and will continue to work with the U.S. administration to advocate for the best interests of customers, partners and consumers."

Hewlett Packard Enterprise, a server maker that split from HP Inc. in 2015, also is girding itself for the new US import duties. A tariff on goods made in Mexico would have a worse financial effect on HPE than the levies on goods made in China, according to a person familiar with the matter who asked not to be identified. HPE also assembles some products in the U.S. and depends on a unified North American supply chain, the person said.HPE expects the duties to be detrimental to the computer industry and the U.S. economy, according to the person, who wasn’t authorized to speak publicly about the issue. The current trade environment is untenable for global companies, which may have to allocate fewer resources to research-and-development and other investments that fuel U.S. innovation, the person said.

In a statement, HPE said, “We continue to believe an open market is best, but we are confident that we can leverage our diversified global supply chain to mitigate the impact from changes in global trade."

Many major technology firms rely heavily on other companies to manufacture their products, including Florida-based Jabil Inc. and Flex Ltd., based in San Jose, California. Both of these contract manufacturers have operations in Mexico.