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Why China could get hurt more from a trade war in the tech sector

  • China could potentially end up losing more than the U.S. from the ongoing trade tensions that are now spilling into the technology sector, according to Gavin Parry from Parry Global Group.
  • That is because major U.S. tech firms operating in China are already under pressure from President Donald Trump to shift their manufacturing businesses back to the United States and create more jobs domestically, Parry said.
  • Earlier this week, Trump unveiled a list of Chinese imports his administration aims to target as part of a crackdown on what the president deems unfair trade practices.
  • Sectors covered by the proposed tariffs include products used for robotics, information technology, communication technology and aerospace.
A reach stacker transports a shipping container in a terminal at the Yangshan Deep Water Port in Shanghai, China.
Qilai Shen | Bloomberg | Getty Images

China could potentially end up losing more than the U.S. from the ongoing trade tensions that are now spilling over into the technology sector, according to a Hong Kong-based investment services firm.

That is because major U.S. tech firms operating in China are already under pressure from President Donald Trump to shift their manufacturing businesses back to the United States, and create more jobs for the domestic economy, Gavin Parry, managing director of investment services firm Parry Global Group, told CNBC. He said that if such a shift happens, there would likely be job losses in China.

Earlier this week, Trump unveiled a list of Chinese imports his administration aims to target as part of a crackdown on what the president deems unfair trade practices. Sectors covered by the proposed tariffs include products used for robotics, information technology, communication technology and aerospace — which some economists note are areas that would benefit from China's industrial upgrading plans.

"China's actually got a fair amount to lose from an economic point of view, whereas most people are talking about the U.S. as the biggest loser coming out of the trade war," Parry said.

One example Parry pointed to was Apple. The tech giant sources parts for its iPhone devices from various companies like South Korea's Samsung Electronics and SK Hynix. Those components are then assembled together by firms like Taiwan's Foxconn.

Much of that iPhone assembly happens in China. According to a report from state-owned newspaper China Daily last year, data indicated that nearly half of the iPhones were manufactured at Foxconn's Zhengzhou plant in Central China. The report said that there were 94 iPhone production lines operated by 350,000 workers at the plant. So, if Apple and Foxconn were to potentially shift some of those production lines to the U.S., it could result in job losses in Zhengzhou.

In January, Apple announced investments to support the American economy — that included predictions that the company would contribute about $350 billion to the domestic economy and create around 20,000 jobs over the next five years, as well as to support innovation among domestic manufacturers.

Beyond Apple, Parry said the Trump administration could offer tax concessions and other incentives to push more U.S. tech firms to bring their operations back stateside. That would, theoretically, boost the domestic economy while the import tariffs could continue to put pressure on China. Parry added that Beijing still needs value-added jobs that many U.S. firms in the country offer, to increase the purchasing power and grow the middle class in China.

"It would cause ripples in China," he said. "Not huge ones but enough for Trump to turn around and say let's talk broadly. It gives him some kind of (room for) negotiations."

The office of the U.S. Trade Representative said this week that the tariff targets were developed using a computer algorithm designed to choose products that would inflict maximum pain on Chinese exporters but limit the damage to U.S. consumers, according to a Reuters report.

The tariff list proposed by the U.S. focuses on technology parts and components — such as printed circuit assemblies, transistors and semiconductor devices — instead of finished goods like mobile phones or computers, according to Ma Tieying, an economist at Singapore's DBS Bank.

"China's (information and communication technology) exports to the U.S. largely consist of finished goods, especially relatively low value-added computers and consumer electronics," Ma said in a recent note. "Most of these products are not directly targeted by the U.S. in the tariff list."

That means U.S. consumers may not experience a significant rise in the price of imported electronics goods from China.

Parry said that ultimately, both Washington and Beijing will sit down to work out existing trade disputes — and the recent moves announcing tit-for-tat measures were just to strengthen their respective hands. On Wednesday, China announced additional tariffs on 106 U.S. products, including soybeans, cars, aerospace and defense. One commentator told CNBC that Beijing's decision to target soybeans is a political maneuver designed to hit Trump's support base.

When it comes to technology, both the U.S. and the Chinese markets are "incredibly intertwined" and that meant the countries could not walk away from each other, according to Dean Garfield, president and CEO of advocacy group Information Technology Industry Council.

Garfield told CNBC's "Squawk Box" that while China had abused the privilege of being a World Trade Organization member by favoring domestic companies over their foreign competitors, he disagreed with the Trump administration's decision to impose tariffs.

"Historically, tariffs have proven not to be effective," he said, adding that the impact would be felt by American consumers.

"Much of the blame falls on China for the way that they've resisted opening up the market there. The result of that though is that not only is China harmed but U.S. and other global markets may be as well unless there's an effort to act in a multinational fashion and get to the bargaining table."

CNBC's Liz Moyer and Jacob Pramuk contributed to this report.