Wedbush: ‘Is Trump Still a Tariff Man?’

Maximum uncertainty, says analyst Amit Daryanani, provides maximum flexibility to Trump.

From a note to clients that landed on my desktop Sunday:

ALL YOU NEED TO KNOW: Given increased optimism around US/China discussions after President Trump’s tweet regarding a G20 meeting, we think it’s instructive to consider the timeline and options going forward.

Our China Strategist (Don Straszheim) published a Note detailing his view on the upcoming meeting. Mr. Straszheim expect tariffs (new ones) get placed on an indefinite hold as the nations jointly call for a “time-out” to restart negotiations. This results in maximum uncertainty around tariffs, and to the Markets and others (in China, the US and Rest of World), but provides maximum flexibility to Trump.

We would also note separately that a number of companies have submitted written comments to the USTR providing their perspective on the tariffs and their impact, including AAPL in our coverage (among others, see Note for links to the 2400+ submissions).

Net/net: we think this uncertainty is likely to persist and that it will continue to induce volatility in most IT Hardware names given their China-centric exposure.

AAPL: We have reviewed AAPL’s written documents that were sent to the USTR. Effectively, AAPL stresses that Round 4 tariffs going active would negatively impact AAPL’s contribution to US GDP and negatively impact their global competitiveness (AAPL mentions how the tariffs would tilt the playing field in favor of global competitors). AAPL also highlights that they directly/indirectly provide employment to 2M+ Americans and remain the highest taxpayer to the US treasury. We have estimated that tariffs could negatively impact AAPL’s EPS by 4-8% (under 10% scenario) and 10-20% (under 25% scenario).

My take: I had no idea that Apple’s letter to Robert Lighthizer was one of more than 2,400 submissions. Has anyone told the President?

See also: Apple’s letter to the U.S. Trade Representative

7 Comments

  1. Fred Stein said:
    There are problems with using Tariffs, a tax increase, as a negotiating tactic.

    1) Ephermal incentives (on dis-incentives) provide no basis to investment by industry here in the US.

    2) If proposed Tariffs have real power to intimidate, they can produce long-term defensive moves by the counter party.

    3) There is always the possibility of mis-calculation and resulting escalation as each side sees itself as the victim.

    0
    June 24, 2019
  2. Jerry W Doyle said:
    There is merit that the president’s intended additional tariffs imposed on goods shipped from China to the USA will exacerbate China’s vulnerable economy further. There also will be some economic blowback to the USA’s economy. The US’s economy, though, is positioned to sustain that economic blowback. China’s economy is fragile, and the tariffs have the potential of bringing social upheaval resulting in authoritarian regime change.

    America’s single monumental foreign-policy challenge today is Beijing’s drive to create a new Chinese order. That new Chinese order consists of a relentless mercantilist attack on America’s industrial and technological bases, costing this nation millions in good-paying jobs and threatening our national security.

    This is an expansionist China. China intends to extend its authoritarian domain over Hong Kong, Taiwan, East and South China Seas, while employing strategic moves into a stealthy cyber arena, development of specific weapons platforms targeted to challenge America’s ability to respond to a crisis in Asia with the specific goal of driving the United States out of the Western Pacific.

    It’s not over. China will continue to test the US on Taiwan, the nine-dash line, grabbing new territories from its neighbors, continued violation of trade rules, support of rogue regimes, cyberattacks, undermining international institutions, decimating human rights and a sundry of other geo-political issues of which I could enumerate.

    American companies will continue to establish productive relationships and sell goods and services to the good citizens of China. Apple will be one of those successful American companies.

    In summary, governing boards of American companies whose manufacturing base is planted in China need to diversify their manufacturing supply chains, because the probability of conflict between the United States and the rising Asian superpower is not going away anytime soon.

    1
    June 24, 2019
    • John Butt said:
      Jerry, as a NZ’er I could swap China for America in your comments with appropriate changes for western pacific to Middle east and your comments ring true also.

      Suggest you don’t throw stones when in a glasshouse

      2
      June 24, 2019
  3. Gregg Thurman said:
    “We are potential collateral damage, and in our case we can ill afford that damage. (Will there be recompense, should the worst happen?)”

    You’re kidding, right? From whom would you deserve recompense should China successfully weaken US industry (including Apple) by its predatory tactics (IP theft and forced IP transfer)?

    This attitude is exactly what I was referring to when I said “They rarely understand, let alone care about, the long term consequences of failing to address deviant players“, especially if the near term impacts them negatively.

    It’s what Thomas Paine alluded to when he wrote about “The summer soldier and the sunshine patriot“.

    1
    June 24, 2019

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