Tim Cook just underscored Trump’s misunderstanding of world trade

01 Aug Tim Cook just underscored Trump’s misunderstanding of world trade

In theory, Apple’s hardware products, most of which are assembled in China, are vulnerable to the effects of a serious trade war between the U.S. and China. China could impose tariffs on virtually any piece of Apple gear, including the iPhone, which accounts for the majority of the company’s revenue.

On July 6, the Trump administration imposed the first duties on $34 billion of Chinese goods. The Chinese government accused the U.S. of starting “the largest trade war in economic history to date” and violating World Trade Organization rules. It also vowed to retaliate. “If I was Starbucks or Apple, I would be scared right now,” China Market Research Group managing director Shaun Rein told the Washington Post. Trump earlier imposed tariffs on Chinese-made solar panels, aluminum, and steel.

So it’s no surprise that Apple CEO Tim Cook was asked to comment on the matter during the company’s earnings call with analysts on Tuesday.

One analyst asked if the tariffs the Trump administration have imposed on China so far have hurt iPhone sales.

Cook said the answer to that is clear from his company’s June-quarter results: “We’ve had double-digit growth in greater China in everything from services to iPad to iPhone; the Watch did really well.” Apple’s revenue from the Chinese market grew 19% over the year-ago quarter.

Cook said Apple has been communicating with the Trump administration about trade and tariffs for months. Cook and Apple don’t deny that there may be problems in the U.S. trade relationship with China, but their message is that tariffs won’t help fix things.

“Our view on tariffs is that they show up as a tax on the consumer and in the end result in lower economic growth, something that sometimes can bring about a risk of unintended consequences,” Cook said.

“The trade relationships the U.S. has with other countries–it’s clear that several of them are in need of modernizing,” he added. “We think that tariffs are not the best way of doing that.”

While the three existing Trump tariffs against Chinese goods have not hurt Apple so far, Cook seemed to imply that a fourth tariff now being considered could be a different story. “We will be sharing our views with the administration during the comment period,” Cook said.

According to Cook, tthe effects of tariffs could hurt Apple in other ways than unit sales declines. “The risk associated with the macro effects are very difficult to quantify,” he said. “It could be an economic slowdown in one of the countries, or a currency fluctuation.”

“We are hopeful, because there is an inescapable mutuality between the U.S. and China–each country can only prosper if the other one does,” Cook said.

Here Cook captures the very thing that Trump and his people get wrong about trade. Trade is a cooperative activity between two or more parties where all benefit. It’s not clear that Trump can see the world that way. It’s well-documented that the president tends to view business relationships as zero-sum games where there must be a winner and a loser. He seems to be applying this same combative style to foreign policy, including trade relations. “Trade wars are good, and easy to win,” he famously tweeted in March.

In terms of tactics with China, Trump was quick to use tariffs. As tariffs increase, the parties involved take increasingly defensive postures, and dialog becomes harder. Trump might be starting just such an escalation with China.

As Cook said, Trump may have good reason for trying to improve the U.S. position in trade with the Chinese, but his go-to aggressive approach could produce all the wrong kinds of results.

“I can’t predict the future but I’m optimistic that the country will get through this and hoping that calm heads prevail,” Cook said.

Source: Fast Company