Trump’s Trade War Takes a Big Bite Out of Apple

The US tech giant Apple’s shares have fallen by 39.1% since the 3rd of October, slashing the company’s market cap by $674 billion. To put this in perspective, Apple has lost more since October than the entire value of many other companies including J.P. Morgan. Viewed from another perspective, the only companies with a market cap larger than that which Apple has lost are Microsoft, Amazon, Alphabet (Google’s parent company) and Warren Buffett’s Berkshire Hathaway.

As a result, Apple issued a rare warning to its shareholders in which the company slashed its Q1 forecasts. Apple’s shares fell a further 7% after the statement was issued while by the closing bell Apple’s share price dropped by 9.96% – its biggest single day drop since 2013. Apple has blamed its woes primarily on a fall in demand in China while also reporting that sales of the iPhone in its other erstwhile strong markets were lower than anticipated in the final quarter of 2018. The Dow ended up dropping by a staggering 660 points on the 3rd of January in the aftermath of Apple’s announcement.

While the trade war is the primary factor in causing America’s leading smartphone producer to lose substantial market value, there are other factors at play. Apple blamed the increased ease of replacing batteries in older models of iPhone as one such reason – a factor which itself appears to be an acknowledgement by Apple of the long standing claim among consumers that iPhone’s batteries are designed with built-in obsolescence. Other factors include a US tech sector that in totality became (and still is) vastly overheated in 2018 while general market fatigue based on a combination of worrisome economic forecasts and iPhone’s over-saturation are also clearly indicative of Apple’s present decline.

But as Apple stated clearly, it is the downturn in the company’s sales in China that represents the main factor in the company’s plunge on Wall Street. The fact of the matter is that the reason Apple’s sales in China are down is the trade war and this is the case for several reasons.

First of all, by applying artificial market pressure to major exporters as well as most emerging markets, currencies throughout the wider world have lost value against the Dollar over the course of 2018. This is of course true of the Chinese Renminbi, although because of China’s carefully managed float, the Renminbi still managed to weather the 2018 monetary storm far more effectively than many other currencies. Still, because of this, iPhones are not getting any more affordable in China.

Secondly, western media outlets falsely presented a ruling in a Chinese court from December as an order for a total ban on iPhone sales in China. As Eurasia Future reported at the time, the judge’s ruling at the Fuzhou Intermediate People’s Court was the result of a patent lawsuit brought forward by the American company Qualcomm. Furthermore, the ruling which Apple is set to appeal in China, only deals with a select number of older iPhones that Qualcomm asserts have been manufactured in violation of Qualcomm’s chip patents. In related news, Qualcomm is currently moving for a similar legal action against Apple in Germany which could set a precedent for the European Union at large.

In any case, the Chinese judge’s ruling caused further damage to Apple’s reputation among shareholders and if German authorities reach a similar conclusion, the bad news for Apple will certainly continue. Ironically, the ruling which resulted from one US company in China suing another US company in China, helps dispel the rumours that somehow American firms do not trust China’s ability to enforce intellectual property rights.

Thirdly, the US ordered Canadian state kidnapping and detention of Chinese smartphone giant Huawei’s CFO Meng Wanzhou has triggered a predictable backlash in China against already expensive Apple products. While this factor is being overstated in some quarters, it nevertheless is a matter of fact that because the US government is seen as acting in an aggressive and lawless manner against Chinese businesswomen in an attempt to destroy the competitiveness of China’s brands, Chinese consumers will react accordingly.

Finally, with both the US markets down combined with US factory activity down to its lowest levels since the 2008 Great Recession, it is self-evident that Donald Trump clearly misjudged America’s comparative economic strengths and weaknesses when instigating the trade war. Unlike China’s economy, the US economy is primarily driven by the power of its stalwart brands and therefore is a Wall Street driven economy. US hard industry is in no realistic position to modernise itself fast enough to overcome years of neglect and over-regulation when compared with the so-called Asian Tigers. Furthermore, as hard industry in the US is greatly reliant on products from China while many US manufacturers also rely on exporting to China, the trade war has made a bad situation worse in this respect. All the while, negative speculation caused by Trump’s proclamation that if a new trade deal with China isn’t reached by March, he will resume his self-anointed position as “tariff man”, the very US brands that Washington seeks to shield from market competition are being swallowed up by domestic investors who are losing their confidence.

From General Motors announcing the closing of factories in Q4 of 2018, to a dismal end of year’s trading on Wall Street and now with Apple continuing to tank, it is clear that not only are trade wars difficult to win, but they are mutually detrimental to all sides. As predicted prior to the trade war’s beginning, it is US companies that are being hit the hardest.

Comments are closed.