US President Donald Trump’s administration says that the long-term gains from a trade dispute with China justifies short-term pain for consumers and investors.
That case might be harder to defend now that the collateral damage includes one of the US’ most recognizable brands.
Apple Inc on Wednesday lowered its outlook for first-quarter revenue after a larger-than-expected slowdown in demand from China and fewer upgrades to new iPhone models.
In a letter to investors, CEO Tim Cook said that Apple did not expect growth in emerging markets to slow so sharply, especially in China.
It is the latest evidence of how tensions between the world’s two biggest economies are backfiring on the US, undercutting Trump’s assurances that the nation could continue to grow quickly despite the conflict.
At the same time, Chinese growth is decelerating more rapidly than many observers expected, leaving few winners on either side.
“China’s economy is seeing a much sharper slowdown than public data are reporting, which suggests there is much more pressure on Beijing to come to a trade truce than is popularly understood,” said Leland Miller, CEO of China Beige Book, a data analytics firm that surveys thousands of companies across the Chinese economy. “On the other hand, the falling US stock market seems to be playing a similar role for President Trump.”
Data this week showed a worsening picture for China’s manufacturing sector. The IHS Markit gauge signaled a contraction for the first time since mid-2017, confirming a trend in the official index on Monday that showed the weakest reading since early 2016.
The timing of Apple’s announcement could appear to chip away at the US’ political leverage just days before trade talks resume with China.
Mid-level officials from Washington are scheduled to travel to Beijing early next week for meetings aimed at averting an escalation on March 1, when US tariffs on Chinese imports are set to rise if an agreement is not reached.
Trump on Wednesday tried to downplay the trade dispute’s effect on the broader economy, saying that when trade deals are sorted out, there would be a rebound after “a little glitch in the stock market last month.”
He was referring to an 8.7 percent drop in the Dow Jones Industrial Average, the worst monthly performance since February 2009.
With less than two months left before the trade truce expires and tariffs on US$200 billion of Chinese goods are set to hike to 25 percent, there are major outstanding issues that might be difficult to resolve in the short time frame the two countries have set for themselves.
The market selloff and signs of economic weakness might force the US and China to reach a deal sooner than expected, said Mohammed El-Erian, chief economic adviser at Allianz SE and a Bloomberg Opinion columnist.
“It actually helps the process along,” he said. “I’ve argued all along that this will not end up being a global war — this is going to be resolved.”
With its economic size and relatively low reliance on trade, the US has the advantage in any trade dispute, El-Erian said.
Once they realize the US is willing to suffer economic pain to win the conflict, other countries would be under pressure to offer concessions, he added.
Damage to major US companies such as Apple could hasten the process.
“Apple is in a particularly dangerous position if the US-China trade war escalates: It gets hit first on any US tariffs, it then gets hit again on any China tariff response,” he said.
Apple’s worries are not confined to the economy. Cook also cited factors including supply constraints to newer models of the Apple Watch, iPad Pro and AirPods.
Home-grown Chinese brands are taking market share from foreign rivals, analysts said, noting a reluctance among consumers to upgrade ahead of an expected wave of new 5G technology.
“I’d suspect this has more to do with industry-specific issues than it being a sign of a major weakening in global GDP growth,” said David Mann, global chief economist at Standard Chartered PLC in Singapore.
Cook is just the latest top executive to cite US policies for his company’s weaker-than-expected performance.
Last month, FedEx Corp CEO Fred Smith blamed politicians, including Trump, for a gloomy forecast.
US tariffs, China’s “mercantilism” and the UK’s negotiations to leave the EU are weighing on trade and economic growth, Smith said last month.
That prompted FedEx to slash its profit forecast for fiscal 2019, implement an employee buyout and cut international delivery capacity, he added.
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