Apple’s woes raise pressure for Trump trade deal

A shock warning from Apple blaming trade tensions with China for a predicted drop in revenue is putting new pressure on the Trump administration to end its tariff fight with Beijing.

Apple CEO Tim Cook wrote in a letter to investors last week that the company was cutting its revenue expectations due to an economic downturn in China that has reduced the demand for iPhone upgrades.

{mosads}The warning from one of the most reliable American companies for investors brought new anxiety to the markets, dragging down tech stocks and shaking the industry.

Tech companies have long highlighted their concerns with the Trump administration’s trade policies. But the rare revenue warning from Apple is putting a new spotlight on the trade negotiations, which are resuming this week between the U.S. and China.

China’s Ministry of Commerce announced last week that a delegation led by U.S. Deputy Trade Representative Jeffrey Gerrish would be holding talks with their officials Monday and Tuesday.

David Dollar, a senior fellow with the Brookings Institution’s China Center, says that as more companies feel the effect of the trade war, the pressure on the administration to secure a trade deal will only increase.

“The company results are important because it would be harder to stick with a hard-line position if more U.S. companies are hurt,” Dollar told The Hill.

The White House, though, is downplaying the industry’s woes. Trump officials see the economic downturn in China as evidence that the tariffs imposed on goods manufactured in that country have been effective in strengthening the United States’s hand and pushing Beijing toward a more favorable trade deal.

Kevin Hassett, the chairman of the White House Council of Economic Advisers, said last week that more U.S. companies in addition to Apple will see their revenues drop as a result of sanctions. He said that trend “puts a lot of pressure on China to make a deal.”

“If we have a successful negotiation with China, then Apple’s sales and everybody else’s sales will recover,” Hassett said in an interview with CNN. “But right now, China is feeling the blow really of our tariffs, and I think that that’s an appropriate place for us to have taken the relationship given the amount of stuff that they were stealing from us.”

Commerce Secretary Wilbur Ross even denied on Monday that there was any link between Apple’s new revenue predictions and the trade fight with China.

“Think about it: There have been no tariffs put on Apple products. So that’s not it,” Ross said in an interview with CNBC.

{mosads}Trump has also dismissed Apple’s complaints about high tariffs, telling the company to move production to the U.S. to avoid those costs.

The trade talks pose a complicated test for negotiations, with a number of contentious outstanding issues.

During trade talks this week, U.S. negotiators will be pushing hard to hold Beijing to its recent pledges to buy more U.S. goods, open up access to its market for American companies and give more protection to foreign intellectual property, according to The Wall Street Journal.

But the tech industry has pushed back on Trump’s approach of escalating a trade fight with China in order to win those concessions. And the sector doesn’t see China’s economic woes as a win when it is so reliant on manufacturing and consumers in that country.

Tech groups are urging the administration to resolve the trade fight.

Naomi Wilson, senior director of policy at the Information Technology Industry Council, urged the two governments to come up with an agreement that “addresses China’s unfair trade policies, rolls back tariffs, and ends this mutually damaging trade war.”

“While this week’s talks are not likely to result in a final agreement, we hope that a solid groundwork will be laid for a comprehensive deal,” Wilson said in an emailed statement to The Hill.

It’s unclear how the negotiations will shake out, or if the administration is feeling the pressure domestically. Experts also say it remains to be seen which side has the upper hand in negotiations as a result of China’s economic troubles and the impact on U.S. tech companies.

“I think that’s the $64 million question,” Charles Gabriel, president of the policy research firm Capital-Alpha, wrote in an email. “Who didn’t know you couldn’t beat up China and force companies, even countries, to move supply chains without the engine for incremental global growth (China) slowing down? And for that slow down to threaten stock markets everywhere?”

The two sides reached a deal for a truce on tariffs last month in order to give themselves time to work toward a deal. The agreement set a deadline of March 1.

It’s unlikely that any significant progress will be made in the initial talks this week, but the struggling U.S. markets appear eager for some good news.

That could help push the administration closer to a deal. Trump touted the markets’ rise in his first year in office but faced a volatile Wall Street in 2018, which was the worst year for stocks in 10 years.

Dollar, the Brookings scholar, said that the administration will likely face a tough choice on whether to agree to some sort of compromise in order to settle an anxious market or forge ahead with strong-arm tactics.

“I think there’s a decent chance they reach an agreement in the next two months,” Dollar said. “But probably these issues will continue to fester for a long time.”

That could mean more pain for Apple and other tech giants.

“Should no agreement be reached in the near-term, the stakes and harm to American companies and workers will continue to increase,” Wilson, from the Information Technology Industry Council, told The Hill.

“The uncertainty of U.S.-China trade relations will also destabilize the economy and have a global impact.”