China hints at retaliation against Apple and iPhones if trade war goes hot

State-backed newspaper promises 'tit-for-tat' if President-elect Donald Trump follows through with promised tariffs

China yesterday signaled that if President-elect Donald Trump follows through with campaign pledges to slap steep tariffs on goods imported into the United States, retaliation will result in shrunken iPhone sales.

In an op-ed piece published Sunday in Global Times -- one of several newspapers controlled by the Communist Party -- the editorial writers warned that higher tariffs imposed by the U.S. would trigger reprisals.

"China will take a tit-for-tat approach then," the piece said of any tariff action by Trump after he takes office in January. "A batch of Boeing orders will be replaced by Airbus. U.S. auto and iPhone sales in China will suffer a setback, and U.S. soybean and maize imports will be halted."

The op-ed writers did not spell out what steps the Chinese government might take to reduce in-country iPhone sales.

During the election campaign, Trump often took aim at the People's Republic of China's trade and currency practices. He regularly told supporters that his administration would levy what he called "defensive" tariffs as high as 45% on Chinese imports, and that he would order the Treasury Secretary to proclaim the People's Republic of China (PRC) a currency manipulator.

The latter remained on Trump's campaign website on a page dedicated to trade; there was no specific mention of the former, but the seven-point plan included, "Use every lawful presidential power ... including the application of tariffs consistent with Section 201 and 301 of the Trade Act of 1974 and Section 232 of the Trade Expansion Act of 1962."

Presidents have substantial executive authority over tariffs during times of national emergency, but otherwise are limited by the laws Trump cited to temporarily boosting import duties by 15%. Higher duties can be ordered by the chief executive only during times of war or declared national emergencies.

The writers at the Party-backed Global Times called Trump's promises "campaign rhetoric" and bet that he would renege on his tariff pledges. "Trump, as a shrewd businessman, will not be so naïve" as to fuel a trade war, they asserted.

Phones are highly susceptible to import tariffs. According to Caroline Freund, a senior fellow at the Peterson Institute for International Economics, the U.S. imports US$40 billion in cell phones from China, or three-fourths of the total value imported.

"For most goods ... imports would just shift to other foreign suppliers if the United States were to greatly restrict trade with China," Freund wrote in June. "But for 825 products, out of a total of about 5,000, adding up to nearly [US]$300 billion, China supplies more than all our other trade partners combined."

Phones topped that list, with laptops running slightly back, with US$37.1 billion in imports to the U.S. from China. That represented 93% of all laptop imports.

China is a very important market to Apple. The US$8.8 billion in revenue from the region in the September quarter represented 19% of Apple's total. Yet revenue attributed to China has been down year-over-year for three consecutive quarters: In the third quarter, it was off 30% from the same period in 2015.

Last month, CEO Tim Cook blamed several factors for the continued slide in revenue from the region, but said the most important was the brisk sales of the larger iPhone 6 and 6 Plus models in 2014-15. "So when that upgrade rate in fiscal year 2016 returned to a more normal upgrade rate, which would be akin to what we saw with the iPhone 5S as a point, it had further to fall," Cook contended.

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Gregg Keizer

Computerworld (US)
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