The risk to Apple of accepting Trump’s help

Stratechery’s Ben Thompson warned that there would come a day when the bit got flipped.

From Monday’s daily update “Trump Orders Companies to Look for China Alternative, Apple’s Chokepoint, The Potential Tariff Impact” ($):

To date Apple has escaped tariffs on its finished products, but that ends September 1 when AirPods, the Apple Watch, and the HomePod will be hit by a 15% tariff (it was 10% before this weekend), along with a slew of accessories and computer parts (for repairs); cellular phones and laptops were granted a reprieve until December 15, and Apple CEO Tim Cook deserves the credit. From CNBC:

Apple’s iPhone was in line to get a 10% tariff starting Sept. 1, before Trump announced a temporary reprieve for laptops and cellphones, pushing the start date for the duties back to Dec. 15. According to Trump, Cook recently argued that the 10% tariff would be unfair to Apple, especially compared with its primary competitor Samsung, which does most of its manufacturing in South Korea. Trump suggested on Wednesday that Cook directly influenced the administration’s decision to waive the tariff on cellphones and laptops.

“The problem was that Samsung, a competitor, his competitor, wouldn’t be paying tariffs, and Tim Cook would,” Trump said. “I gotta help him out short-term, because it’s a great American company.”

There is a lot to unpack here. First, Trump’s personalizing of this issue is exactly what I was concerned about back in 2016 when tech executives, including Tim Cook, had that infamous meeting with Trump. Much of the reporting out of that meeting framed it as Trump rather harmlessly charming industry executives; my argument was that that was what was so concerning:

Right there in the first two paragraphs, are two Trump statements that should be deeply unsettling for those interested in defending the (small ‘l’) liberalism I discussed yesterday: “I’m here to help you folks do well” and “We’re going to be there for you”.

First off, these sorts of statements in fact are the threats the New York Times was apparently expecting: once you’ve introduced the idea of the President having a direct impact on the success of a particular company, it only takes the flip of one bit to realize the downside. Today Trump says he wants to “help”; there is nothing stopping him from tomorrow saying he wants to “hurt.”

Trump is, pretty clearly, actively helping Apple (I’d also add that the point about actively helping and hurting being two sides of the same coin is another piece of evidence that Trump’s antitrust policy is driven by personal favor or animus, not the facts). To that end, though, as worrisome as this might be for economic liberalism, Apple CEO Tim Cook deserves credit from shareholders at least for playing the game better than anyone. Trump declared that it was personal, and Cook took him up on it to a far greater degree than any other big tech executive.

My take:  Thompson, as usual, sees things clearly. If you’re not a Stratechery subscriber, you don’t know what you’re missing.

8 Comments

  1. Bruce Oran said:
    You have to feel for Tim Cook. Damned if he does, damned if he doesn’t. Taking the time to “educate” Trump he can be accused of being complicit, not talking to Trump he will be accused of turning his back on Apple and its shareholders. For certain, this is risky business but I feel this is where Tim Cook can finally walk out of the shadow of Steve Jobs. Can you imagine how Jobs would have handled this? He probably would have told Trump many things, none of which would have been well received, changed policy or benefited Apple. I think trying to influence policy is a smart move. So far, Tim is doing it well!

    3
    August 26, 2019
  2. Fred Stein said:
    I don’t buy Ben’s interpretation. He takes Trump’s statements literally and builds a case on them.

    Did Tim Cook ‘ask for help’, or did he state the obvious. Samsung is just one of many companies that manufacture in Asia, where nearly all our consumer electronics are made.

    3
    August 26, 2019
  3. Gregg Thurman said:
    If my understanding of tariffs is correct it is applied to content, not the finished product.

    As for Chinese tariffs, they would only apply to the American content of those products sold in China. Apple products, as are all products manufactured in the Shenzhen special economic zone, manufactured for export are not subject to Chinese tariffs. This is the same deal Apple is trying (so far unsuccessfully) to secure in India.

    In other words I think everybody is focusing on the tariff rate and not the actual impact in their valuation model of AAPL.

    I guarantee there will be many questions about this issue during the next conference call.

    1
    August 26, 2019
  4. Jerry W Doyle said:
    “… My take:  Thompson, as usual, sees things clearly.”

    I disagree respectfully. I do not believe Ben Thompson has clarity on these discussions with the president. Fred Stein more is on target. “… He (Thompson) takes Trump’s statements literally and builds a case on them.”

    Tim Cook understands the need of this president to be taken seriously and shown respect. Consequently, from day one Tim Cook has treated the president with respect and taken him seriously all while disagreeing with the president on some administration policies.

    The president wants to work with individuals who desire to work with him. It doesn’t take a rocket scientist to understand that fact. Tim Cook is showing his desire to deal with this president and get things done and the president is willing to listen and respond appropriately as to what is best for continuing to cultivate a strong working relationship with one of the greatest American companies.

    For Ben Thompson to intimate that something is sinister in the president’s motives to respond constructively to Tim Cook’s cogent presentation of facts to the president is disingenuous and myopic in understanding how to deal with this world leader.

    4
    August 26, 2019
  5. John Konopka said:
    Trump always personalizes things. Everything is about him. This is not new.

    So far there is more noise than signal to this story. The iPhone tariffs were delayed till December. That is close to primary season. I doubt Trump will want to do more damage to the economy then.

    More than half of Apple’s business is outside the US which mitigates the tariff’s effect on Apple.

    0
    August 26, 2019

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