Fortune Editors China trade war hurts Apple and Tesla

Trade war with China begins. Tariffs on goods imported from China to the U.S. are now 145%, and goods going the other way are now taxed at 125%, China announced this morning. It virtually brings to an end $582 billion in international trade between the two countries.

The economic fallout will be felt in a million ways, large and small, across the world. One example from the WSJ: Arlen Nercessian, a California kitchen-equipment supplier, asked his Chinese agent to put his shipments of aluminum plates on hold even though “‘there’s no way I’ll get any of these in the U.S.,’ he said. He might have to cut most of the company’s nine employees and contractors, switch to cheaper software and stop traveling to food shows to advertise his products ‘just to hunker down and survive.’”

Apple’s supply chain is trapped. The company has spent decades building the partnerships it needs in China for its computers and phones. The cost of iPhones in the U.S. could double or triple if negotiations don’t reduce the tariffs. (Of course, they will remain the same price in all other countries which don’t tariff Chinese goods!) Apple “had their boat flipped over in the ocean with no life rafts,” says Wedbush analyst Daniel Ives.

Tesla stopped taking orders in China. Elon Musk’s company is no longer selling the Model S and Model X vehicles in China. Although those sales are a small part of Tesla’s overall business, the context is that Tesla’s biggest manufacturing facility is in Shanghai, and that site supplies the majority of its international sales, according to Reuters.

Is Trump’s plan working? There’s a school of thought that the president’s tariff policy was always a ploy to target China and bring international partners closer to the U.S. But the idea is complicated by the fact global markets haven’t recovered and a trade war with China looms, writes Paolo Confino.

Europe prepares tariffs on U.S. tech companies. Life will get more expensive for Mag 7 companies if negotiations fail, according to European Commission president Ursula von der Leyen.

UAW workers’ profit-sharing checks will be reduced. Trump’s tariffs on autos are driving car companies’ profits to zero, and that’s going to cost UAW members $1,000 to $5,000 in lost pay, according to the Anderson Economic Group. Some checks could go to zero. Irony alert: The UAW supports Trump’s tariff plan.

U.S.-Iran nuclear deal talks are continuing. Jaw-jaw is better than war-war, as they say.

Ex-Abercrombie & Fitch boss Mike Jeffries has dementia and is thus unfit to stand trial in the sex crimes case against him, his lawyers say. Jeffries was 80 when he was arrested.

Jassy’s suggestion box. Amazon CEO Andy Jassy wrote in his annual note to shareholders that a program asking employees to call out bureaucracy at the company garnered almost 1,000 responses. Jassy said he’s already made more than 350 changes based on the feedback. 

Banks report earnings today. Analysts are warning that banks like JPMorgan, Wells Fargo, and Morgan Stanley could announce lower-than-expected Q1 earnings results when they are expected to report on Friday, though Citi may fare better.

What to grab before tariffs resume. Everything from electronics to household items to pharmaceuticals will be in pricing jeopardy when the freeze on President Trump’s reciprocal tariffs ends in early July. Here’s everything to stock up on in the meantime.

China is winning the trade war so far, according to the markets:

• The S&P 500 dropped another 3.5% yesterday and is now down 10.4% YTD. 
• S&P 500 futures were in the red this morning, pre-opening bell.
• By contrast: China’s SSE Composite rose 0.45% today and is down only 0.75% YTD.
• Treasuries are behaving like risk assets. That’s not good, former Treasury Secretary Lawrence Summers says.
• The price of gold—famously a safe haven for investors—hit a new record high.
• The VIX fear index remains at its highest since Covid struck in 2020.
• The dollar is weakening. It has lost 8.34% of its value YTD versus the DXY, an index that tracks a basket of commonly traded currencies.
• Goldman Sachs warned of another potential global equity drawdown in a note to clients yesterday. “The probability of a further sell-off recently went above 35%,” the note says.


From the analysts 

• EY on the Fed: “With little clarity on where the administration’s trade strategy will ultimately land, expecting a swift pivot toward aggressive easing would be premature,” per Gregory Daco.
• Wedbush on China: Now we would expect massive negotiations across the board over the coming months including China being front and center as the biggest wild card. For tech stocks this was much needed relief and pulls stocks and the market from the edge of the cliff although China remains the biggest X variable related to Apple and the broader supply chain,” per Daniel Ives.
• Wedbush on Apple: “No US tech company is more negatively impacted by these tariffs than Apple with 90% of iPhones produced and assembled in China. … Cupertino has no choice but to price iPhones at $2k+ if these tariffs stick for more than a few weeks,” Ives says.
• Oxford Economics on jobs: “The jobless claims data are consistent with a labor market that is healthy enough to allow the Federal Reserve to keep policy on hold while it monitors the path of inflation as tariff effects fully kick in. The labor market will weaken this year in response to tariffs, but we think the Fed will delay rate cuts as long as possible and won’t resume loosening monetary policy until December,” per Nancy Vanden Houten.

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