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Apple has a problem Huawei. Among the myriad of issues raised by the evolution and intensification of trade between the Cold War and China, the repercussions on Apple may have been less appreciated. And not just Apple, of course, but a large number of US companies that have both transferred their production to China over the last two decades and, more importantly, have appealed to Chinese middle-class consumers as a source of growth and profits. Until now, the focus has been on US tariffs on Chinese imports of $ 200 billion in the US and on the pressure on Huawei, but it should be granted the same attention to what the Chinese could do to retaliate. And here, Apple is Ground Zero.
It is essential to recognize that many people in China consider that the US's aggressive trade and intellectual property protection measures are designed to prevent China from continuing to make progress. The multi-pronged campaign against Huawei, presented by the US government as a legitimate security measure against a shadowy multimillion dollar company with the Chinese government, is widely seen in China as a blatant attempt by Washington to eclipse a serious competitor, mobile telephony to another. equipment to the network equipment and in particular 5G.
Beijing could react by increasing tariffs on US imports into China and making US companies more restrictive to do business in China, including allowing delays and delaying shipments to customs. But if China is really looking for revenge, it does not have to look any further than Apple. The Cupertino company has a vast global activity, but China represents a real vulnerability.
China accounts for 19% of Apple's worldwide sales, with the iPhone constituting the bulk. Although China is not such a buoyant market for Apple's booming services business, it has always been a strong and growing market for Apple devices – until last year.
Already, without the government doing anything explicit, Apple's sales in China have decelerated sharply. It occupied 10% of the smartphone market in early 2018; he now has barely 7%. Almost all smartphone manufacturers saw their shipments decline in China. L & # 39; exeption? Huawei, whose market share and sales have modestly increased while competitors, ranging from Apple to Samsung through Xiaomi, fell.
Customers are browsing an Apple Inc. store in Hong Kong.
Bloomberg
Apple's recent deceleration in China coincided with the start of the tariff war last spring. It's hard not to see a connection, particularly in the light of recent evidence that US actions against Huawei are creating a nationalist reaction in China, manifested in a "Buy China, boycott Apple" movement.
Beijing can almost certainly strengthen or weaken nationalist fervor by manipulating social and traditional media. But the Apple-to-Huawei movement does not feel so different from American efforts in the 1970s to boycott grapes that relied on underpaid labor or European actions against GMOs and companies such as Monsanto . Given the almost constant flow of invectives against China from Washington, these Chinese responses should not be surprising.
This makes Apple even more vulnerable if Xi Jinping and his government decide to take it explicitly against Apple in retaliation for attempts by the Trump administration (and the Obama administration before it) to to reduce or even halt Huawei's ability to compete with the United States and the United States. Where is. The list of potential retaliation is long, starting with the constraints imposed on Apple stores and possibly forcing Apple to use different or approved components, such as Chinese chipsets.
But it's getting worse. The government could prevent Chinese citizens who bought Apple products from accessing the App Store or impose onerous conditions on Chinese and foreign developers – although with millions of Chinese developers, this would also hurt to their national economy. Other countries, from Saudi Arabia to Russia, have already tested these methods successfully, revoking licenses (and not those of Apple) or imposing restrictions and conditions making any operation impossible for some companies.
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And then, there are even more radical options: the government could simply ban the sale of the iPhone in China using the same justifications as those used by the United States against Huawei: national security and data security . Although Apple is not a major supplier in the defense industry and it has actually mixed with Washington and the FBI about encryption, the Chinese could just say that the presence of foreign material and operating systems protected by security breaches its data security laws and its right of access to citizens. The data. Such arguments would be legally weak, but perhaps not much more than the evidence to date that Huawei is actively working with the Chinese government.
Interestingly, Ren Zhengfei, founder and CEO of Huawei, has explicitly opposed attempts in China to boycott or restrict Apple. "Apple is the world's largest company, without Apple, there would be no mobile internet," Ren said last week. "Apple is my teacher, he is advancing in front of us, as a student, why should I oppose my teacher?" Of course, such noble sentiments are motivated by personal interests; Defend Apple on principle, it is also a way to insist that Huawei be treated fairly by Americans. But despite Ren's views, the Chinese government does not share his feelings.
As Wall Street analysts have recently warned, these measures could not only significantly reduce Apple's business in China, but also have a significant impact on its overall profitability. And this without Beijing attacking the heart of the supply chain of Apple, which is centered on Shenzhen and its surroundings and which is heavily dependent on the manufacturer Foxconn. This would disrupt the pressure much more than press Apple into the Chinese domestic market, but it would also do a lot of harm to the Chinese economy and spur mutually assured economic destruction. It's possible, of course, but likely? Not yet.
The vulnerability of Apple's business in China is just one example of the unintended consequences of this growing trade conflict. Apple is simply the most visible hundreds of US companies selling hundreds of billions of products to Chinese consumers, partially offsetting the wave of Chinese imports to the United States: Nike, Starbucks, KFC, Ralph Lauren , Boeing, GM, etc. China has barely begun to exert its influence in response to Trump's tariffs. It would be foolhardy to assume that its inaction so far is a harbinger of inaction in the future, and these scenarios should warn those who argue that China has more to lose than the states. In this competition.
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