With China having effectively exhausted the amount of US imports on which it can impose tariffs following the $50BN in tariffs slapped in June, and announcing last Friday that it is considering an additional $60BN in retaliation to Trump’s $200BN in incremental Chinese tariffs, the focus has shifted to how else China can hurt the US, aside from simply cranking up the tariff rate.
Of course, China has previously hinted at what it could do, first in March…
A Chinese Communist Party newspaper on Saturday listed U.S. companies that’d be “most damaged” if a trade war began — including Apple Inc., Intel Corp. and Boeing Co.
— zerohedge (@zerohedge) March 25, 2018
… and then again in April.
APPLE, BOEING MAY GET HURT BY ACCIDENT IN TRADE WAR: XINHUA
— zerohedge (@zerohedge) April 5, 2018
However until now, a Chinese retaliation against the world’s most valuable company was merely floated in big picture terms and these were simply veiled threats, with China refusing to stray too far from the hypothetical.
That changed today, when an article in the state-run People’s Daily set its sights squarely on Apple, which it said has benefited from cheap labor and a strong supply chain in China and needs to share more of its profit with the Chinese people or face “anger and nationalist sentiment” amid the ongoing trade war.
The article notes that Apple recently reported that in the quarter ended June 30, sales to the greater China region rose by 19% to $9.6 billion and summarizes that “amid escalating trade friction, the company’s better-than-expected quarterly result in China was a major reason for the surge in its shares.”
However, in a tongue-in-cheek rhetorical question that is really a hint to the public, the Daily said that “the eye-catching success achieved in the Chinese market may provoke nationalist sentiment if US President Donald Trump’s recently adopted protectionist measures hit Chinese companies hard.”
As a result, should the trade war between the U.S. and China continue, it would leave Apple and other U.S. firms with substantial Chinese revenues vulnerable as “bargaining chips” for Beijing.
Th Daily then doubled down on its worst-case “hint”, warning once again that China is by far the most important overseas market for the US-based Apple, “leaving it exposed if Chinese people make it a target of anger and nationalist sentiment” and while it claims that China doesn’t want to close its doors to Apple despite the trade conflict, “but if the US company wants to earn good money in China, its needs to share its development dividends with the Chinese people.”
The suggestion is that Apple will have to either hike domestic wages, invest more in China, or – best of all – share its technology with Beijing. If it refuses, China’s population has a green light to “make it a target of anger and nationalist sentiment.”
While Apple has so far escaped unscathed by the escalating trade war, and contrary to our expectations, nationalist sentiment has not emerged pushing the local consumers again purchases of US goods, today’s Op-Ed may be a turning point, because for the first time China hints it is time to spread the wealth. Specifically the People’s Daily author writes, the “in an increasingly interconnected world, Apple is a particularly good example of global manufacturing.” And the role of China is critical “as it serves as a key production and processing base for Apple.”
Many Chinese companies have been included in Apple’s production chain to provide parts and components or assembly work. This has allowed Apple to benefit from China’s ample supply of cheap labor.
And now, it’s time to give back because “in the case of the iPhone” the article claims, “Chinese processors only get 1.8 percent of the total profits created by the device.“
Hint: it’s time for Apple to give more if it doesn’t want something unfortunate to happen to its record profits.
Apple’s contribution to job creation in China is notable, but the company enjoys most of the profits created from its Chinese business. It is impractical and unreasonable to kick the company out of China, but if Apple wants to continue raking in enormous profits from the Chinese markets amid trade tensions, the company needs to do more to share the economic cake with local Chinese people.
And finally, it appears that China has figured out that the best way to retaliate against Trump’s trade wars is not a tit-for-tat escalation in tariffs, but to hit America where it really hurts: the shareholders’ bottom line and the stock market.
The trade conflict initiated by Trump administration reminds China to re-examine China-US trade. It seems US companies doing business in China are the biggest winners from China-US trade. The Chinese market is vital for many top US brands, giving Beijing more leeway to play hardball in the trade conflict.
And just like that, China became a Democrat’s best friend, and an honorary foreign leader of the #Resistance.
Read on ZH