Apple Inc. (NASDAQ:AAPL) has enough problems with the iPhone. But a trade war with China would — ahem — trump them all. That’s why a recent editorial from a Chinese state-controlled newspaper is chilling if you’re invested in AAPL stock right now.
Global Times isn’t the most serious of newspapers in China, but it is influential, according to Financial Times. The nationalist tabloid has 15 million readers in print and online combined and counts itself as the third-largest news site in the country.
Most troubling of all, it’s a government mouthpiece of sorts. From Financial Times:
“The English-language edition has become a favored, if unofficial, platform for broadcasting Beijing’s version of events to an international audience, thanks to a bolder and more readable style than most other state media. That puts the paper at a historic high in terms of influence, [the editor claims].”
So when this newspaper runs an editorial warning of the repercussions of a trade war, investors would do well to listen.
On Monday, it recapped what happened last time the U.S. and China got into a trade spat and what would follow should it go this route again.
From Global Times:
“Not long after Barack Obama took office, US trade and commerce authorities announced a 35 percent import tariff on Chinese tires. In response, China took retaliatory steps of imposing tariffs on US chicken and automotive products. Both China and the US suffered losses as a result. From then on, the Obama administration waged no trade war against China. If Trump imposes a 45 percent tariff on Chinese imports, China-US trade will be paralyzed.
China will take a tit-for-tat approach then. A batch of Boeing orders will be replaced by Airbus. US auto and iPhone sales in China will suffer a setback, and US soybean and maize imports will be halted. China can also limit the number of Chinese students studying in the US.”
A New Risk for AAPL Stock
None of these worries are new to investors in Apple stock. Shares in the company have been sliding since the election.
Even if the new president is serious — and there’s reason to believe he is not — the office has limited control of trade policy. It could sting anyway.
As Global Times notes:
“To impose a 45 percent tariff on imports from China is merely campaign rhetoric. The greatest authority a US president has is to impose tariffs of up to 15 percent for 150 days on all imported goods and the limit can only be broken on the condition that the country is declared to be in a state of emergency. Other than that, a US president can only demand a tariff increase on individual commodities.”
Apple needs its China sales. The next big wave of demand in North America isn’t expected to hit until next year with iPhone 8.
A tariff spat with China is unlikely, but it can’t be dismissed out of hand if you own AAPL stock. This is indeed a risk and needs to be accounted for in the Apple stock price.
That’s going to make shares sensitive to stories like Monday’s, as well anything coming out of the White House.
Two critical parts of the buy thesis on Apple stock are its valuation and a continuation of better-than-expected sales. Analysts are betting on an iPhone 8 super cycle. Anxiety over trade policy could be a stiff headwind for AAPL stock for some time.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.