China ban on Apple risks trade war

China’s partial ban on Apple puts risk of trade wars and US-China decoupling back on the agenda – by Kyle Rodda

 
Up until now, the markets have been focused on how the breakdown in trade relations will impact China’s economy and investment landscape. But China’s partial ban on Apple shows that the risks and costs of US-China decoupling cut both ways.

Most estimates suggest consumption makes up nearly 40% of Chinese GDP now. Roughly a quarter of Apple’s sales come from China. Not only that, but it used to be the case that the West would dismiss these moves because it was thought Chinese businesses didn’t have the ability to produce comparable, alternative products to replace US products. That’s rapidly changing,  evidenced by the boom in Chinese electric car manufacture, BYD.

For Apple, it also raises the question of whether the bans could be expanded. 15-25% of the company’s revenue comes from China, depending on the stage of the economic cycle. Apple’s shares have lost upward momentum recently, squeezed by the run-up in long-dated Treasury yields. The China developments have catalysed a $200 billion drawdown for the stock as the price carves out a lower higher and slips below the 10-day moving average. Overall,  a more hawkish stance towards US companies from China is a meaningful risk to the profitability and growth prospects of the likes of Apple.
 
Kyle Rodda is Senior Market Analyst at Capital.com