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Apple CEO Tim Cook's bad earnings news was good news for President Donald Trump's trade war with China.
- Apple unexpectedly lowered their guidance for the holiday quarter on Wednesday.
- The company pinned a significant portion of the blame on China's economic slowdown.
- Apple CEO Tim Cook in turn blamed the slowdown partly on President Donald Trump's trade war with China.
- US economic data remains strong in comparison.
- The dichotomy bolsters Trump's argument that the trade war is hurting the Chinese economy more than the American economy and that the US can hold out until Beijing gives in on a trade deal.
Apple's shock announcement that the holiday quarter turned out worse than expected not only provided investors a warning about uglier than expected earnings for the company, but also boosts one of President Donald Trump's key arguments in favor of the trade war with China.
Despite reports of pain for American businesses and workers, Trump has long said that the trade war is taking a much larger toll on China than the US. Given the relative strength of the American economy, Trump argues, the US can afford to wait for the economic pain to force China into concessions.
"China, which is for the first time doing poorly against us, is spending a fortune on ads and P.R. trying to convince and scare our politicians to fight me on Tariffs - because they are really hurting their economy," Trump tweeted on August 4.
In Trump's line of thinking, the US can withstand blows from tariffs on $250 billion worth of Chinese goods because the underlying economic fundamentals are stronger than those in China. Apple's sudden revenue disappointment seems to support the argument, as the company placed nearly all the blame on the shoulders of China.
"While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China. In fact, most of our revenue shortfall to our guidance, and over 100 percent of our year-over-year worldwide revenue decline, occurred in Greater China across iPhone, Mac and iPad.," Tim Cook, Apple's CEO, said in a letter to shareholders on Wednesday.
Cook also explicitly named Trump's trade war a contributing factor for the Chinese slowdown.
"We believe the economic environment in China has been further impacted by rising trade tensions with the United States," he wrote.
Read more: Tim Cook blames Trump's trade war with China as a big factor in Apple's slowdown»
Other companies are also reporting troubles in China due to the slowdown and trade war. The head of aircraft manufacturer Airbus' China business said the trade war will have a "negative impact on China's aviation growth."
Kevin Hassett, the Chairman of Trump's Council of Economic Advisers, told CNN that American companies with significant operations in China will get similarly whacked.
"It's not going to be just Apple," Hassett said. "There are a heck of a lot of US companies that have sales in China that are going to be watching their earnings being downgraded next year until we get a deal with China."
While China's slowdown is not entirely attributable to the tariffs - internal factors like high debt levels are also contributing - Apple and others make clear that the pain caused by the trade war is a contributing factor.
Trump's argument is twofold:
- That Beijing will eventually give in to US demands to alleviate some of the economic pressure on the country, especially if non-tariff factors dragging down the Chinese economy get worse.
- And that the US economy remains strong in spite of the trade war and can withstand pain for longer.
"The Wall Street Journal has it wrong, we are under no pressure to make a deal with China, they are under pressure to make a deal with us. Our markets are surging, theirs are collapsing," Trump said in December.
Apple's announcement and other company warnings seem to echo the first element of Trump's argument.
At the same time, US economic data remains relatively strong. Despite some softening data, unemployment remains historically low, wage growth is picking up, consumer confidence is high, and Americans are still spending money at a solid clip. This could change, but the American economy appears to be on more solid footing than China.
The US and China are currently in negotiations on a trade deal during a 90-day truce. The pause in action - which is set to end March 1 - comes after months of back-and-forth tariff announcements. In total, the US placed tariffs on $250 billion worth of Chinese goods and Beijing hit back with tariffs on $110 billion worth of American goods.
But the Chinese appetite for economic pain could be much more expansive than Trump anticipates. For one, Chinese President Xi Jinping doesn't have to worry about an election anytime soon and Beijing may still have the ability to prop up domestic firms in the event of protracted trade war.
But Hassett made it clear on Thursday that the White House believes that the US has the upper hand in the trade battle with China, saying the declining earnings of companies in the country "puts a lot of pressure on China to make a deal."