Trump’s trade pick is trouble for Apple

Peter Navarro is gunning for a trade war with China.

The new administration has named the author of Death by China to head its National Trade Council, and at least one China watcher is freaking out.

“[Peter] Navarro’s appointment specifically and Trump’s clear signaling about China generally should greatly concern Apple in particular,” writes Ben Thompson from his home base in Taiwan. “To say he is a China hawk is an understatement.”

In today’s Stratechery column, Thompson quotes Navarro in 2012 riffing on China’s “weapons of jobs destruction” in the Huffington Post:

You cannot really talk about why Apple products are produced in Shenzhen rather than Portland or Seattle or Los Angeles without dealing with the most important source of China’s competitive edge: its unfair trade practices. China uses five major unfair trade practices — what I rightly call its “weapons of job destruction” — to tilt the global factory floor away from American workers, and for more than a decade now our political leadership has done nothing about it.

The most potent of these weapons of job destruction is China’s currency manipulation…A second powerful weapon is that of illegal export subsidies…a third weapon is China’s counterfeiting and piracy…the fourth weapon of job destruction [is] the unrestricted ability of a Chinese manufacturer to “pollute for profits”…the fifth weapon of job destruction is [mistreatment of workers].

What’s so disturbing isn’t just Foxconn — which sadly, is probably the very best factory in China — it’s that American corporate executives are so willing to take advantage of the Chinese people to make a buck while gutting this nation.

Ouch.

It’s not clear what kind of leverage Navarro could bring to bear on those weapons of job destruction, but as Thompson points out, any change from the status quo—”whether that be shifting manufacturing to the United States or some sort of tariff on imported goods”—would result for Apple in some combination of reduced flexibility, lower margins, and higher prices.

“The kicker” Thompson concludes, “is that Apple would pay on both ends: China has already singled out the iPhone as a means of retaliation, which means any sort of trade war will hurt Apple in its two biggest markets simultaneously.”

How much could a trade war cost Apple investors? See Apple and Trump: A tax and trade policy calculator.

11 Comments

  1. Fred Stein said:
    This is serious and scary. While none of us can predict the outcome, the market will attribute a non-trivial probability to the most bearish scenarios.

    Note also; !) China currency is dropping already vs USD due to other factors; 2) China’s mood, in line with an apparent global trend, is turning more nationalist; 3) Huawei has the means (talent and money) and will to compete globally like no other Smartphone maker.

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    December 22, 2016
  2. John Kirk said:
    This is horrifying. I try to stay away from politics, but the economics here is clear. The “unfair trade practices” that Peter Navarro speaks of do transfer jobs — lousy jobs — to China. But they do so by subsiding the products Americans buy.

    China is shooting itself in the foot. Peter Navarro thinks the way to solve the problem is for us to shoot ourselves in the foot too.

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    December 22, 2016
    • Fred Stein said:
      John, “Like”. Reminds me of one of my finest combinations of over-used metaphors. “Don’t shoot yourself in the foot, while it is in your mouth.. with your last sliver bullet”.
      Were you the one who compared Comey’s demands for back-doors to shooting a rat in your boat and putting a hole in the hull?

      1
      December 22, 2016
      • John Kirk said:
        ““Don’t shoot yourself in the foot, while it is in your mouth.. with your last sliver bullet”.

        The above may be over-used, but it’s the first time I’ve heard it. (I’ve added it to my collection.)

        And no, I can’t take credit for comparing back doors to shooting a rat and putting a hole in the boat — but I wish I HAD said it!

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        December 22, 2016
  3. Jonathan Mackenzie said:
    I have a hard time believing such a pro oil, pro Wall Street administration would really get too deeply entrenched in a trade war. I could certainly be proven wrong, but Trump’s rhetoric is often one sided and not well thought out. It’s not just Apple that does business in and through China and the reverberations would be felt far and wide. I mean of course we have to fear the possible consequences of incompetence, but that will be a white knuckle ride for the next four years in all kinds of spheres. But all this posturing about China is not a concern to me yet.

    I am working under the assumption that business will make it known just how crazy and self destructive going down this path would be. Trump may need to posture for political points but pulling the trigger would be another matter entirely. Nixon didn’t open up the markets of China because he was feeling charitable. He did it because it made a lot of money for American multinationals. So these companies will now just allow this arrangement to be destroyed? I doubt that.

    3
    December 22, 2016
    • Richard Wanderman said:
      I hope you’re right. How do you think companies will stand up to this if Trump tries to start it?

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      December 22, 2016
      • Jonathan Mackenzie said:
        I don’t know, and I have no special insight. But the existing power structure has tools at its disposal to meet ideological challenges of all sorts. If this were not the case, it would not be so entrenched.

        I’m not saying Trump can’t make some waves. Maybe he will. But if he messes with the global sales capacity of Ford and Caterpillar and Coke and McDonalds, and yes Apple too (just to name a few), he is going to have a lot of very rich people pushing back very hard, both publicly and privately.

        This will be fascinating and informative to watch play out.

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        December 22, 2016
        • Jonathan Mackenzie said:
          Gees, I sound like a conspiracy nut. I’m not talking about the Rothschilds. What I mean to say is that the .1% do not generally act in unison except in the broadest terms. But the very rich can come together pretty well when the topic is preserving capital.

          There are differences of opinion about whether banks can be forced to trade more safely without all the profit constraining regulation (or whether the instruments they trade can be designed to be less risky). And there are differing degrees of greed and opportunism represented among the various viewpoints.

          But few people want to flirt with encouraging another potentially deep recession.

          If Trump actually believes that getting good paying manufacturing jobs in the US is as easy as slapping some tariffs on Chinese imports, the question becomes whether anyone can convince him otherwise. If he doesn’t actually believe it, then any tariffs should be largely symbolic.

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          December 22, 2016
    • Fred Stein said:
      I hope you’re right. I hope that Trump sees an opportunity to have legacy by leveraging an economy that is already strong and improving. Just by fixing the repatriation of overseas profit tax, he has an easy win.

      Still, global forces, egged on my his rhetoric, may take a course of their own. Before the election, China’s Yuan was falling vs. the USD, and their nationalism was on the rise. Nationalism rises all over – Italy, Brexit, Turkey, to name a few. History tells us crazy is contagious.

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      December 22, 2016

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