Apple has a Huawei problem. Of the myriad issues raised by the evolving and intensifying US-China trade Cold War, the knock-on effects on Apple have been perhaps least appreciated. And not just Apple, of course, but a slew of American companies that have both shifted production to China over the past two decades and, more vitally, tapped into Chinese middle-class consumers as a source of growth and profits. While the focus so far has been on US tariffs on $200 billion of Chinese imports into the US, and the pressure on Huawei, there should be equal focus on what the Chinese might do to retaliate. And there, Apple is ground zero.
It’s vital to recognize that many people in China view the aggressive US measures on trade and intellectual property protections as designed to prevent China from rising further. The multipronged campaign against Huawei, which the US government portrays as a legitimate security measure against a multibillion-dollar enterprise with shadowy connections to the Chinese government, is largely perceived in China as a naked attempt by Washington to kneecap a serious competitor in everything from mobile devices to networking equipment and especially 5G.
Beijing could respond by increasing tariffs on US imports into China and by making it more cumbersome for US companies to do business in China, through such moves as permitting delays and holding up shipments in customs. But if China is truly looking for revenge, it need look no further than Apple. The Cupertino company has a vast global business, but China represents a real vulnerability.
China represents 19 percent of Apple’s worldwide sales, with the iPhone making up the bulk of that. While China is not as fruitful a market for Apple’s burgeoning services business, it is and has been a strong and generally growing market for Apple’s devices—until the past year.
Already, without the government doing anything explicit, Apple’s China sales have slowed precipitously. It had 10 percent share of the smartphone market at the beginning of 2018; it now has barely 7 percent. Almost all smartphone makers have seen shipments decline in China. The exception? Huawei, whose market share and sales have modestly increased while its competitors, ranging from Apple to Samsung to Xiaomi, have fallen.
Apple’s recent deceleration in China coincided with the beginning of the tariff war last spring. It’s hard not to see a connection, especially in light of recent evidence that the US actions against Huawei are creating a nationalist backlash in China manifested as a “buy China, boycott Apple” movement.
Beijing almost certainly can ratchet up or dial down the nationalist fervor by manipulating social and traditional media. But the Apple-to-Huawei movement has a bottom-up grassroots feel not so different, say, from US efforts in the 1970s to boycott grapes that relied on underpaid labor or European moves against GMOs and companies such as Monsanto. With the near-constant stream of invective against China coming from Washington, those domestic Chinese responses should not be surprising.
That makes Apple even more vulnerable should Xi Jinping and his government decide to target Apple explicitly in retaliation for the attempts of the Trump administration (and the Obama administration before it) to curtail, if not halt, Huawei’s ability to compete in the US and the West. The list of potential reprisals is long, starting with constraints on Apple’s retail stores and perhaps requiring Apple to use different or approved components such as domestic Chinese chip sets.
But it gets worse. The government could make it harder for Chinese citizens who bought Apple products to access the App Store, or place onerous conditions on Chinese and foreign developers—though with millions of Chinese developers, that would also hurt their domestic economy. Other countries ranging from Saudi Arabia to Russia already have tested out such methods quite successfully, revoking licenses (not Apple’s) or placing restrictions and conditions that make it all but impossible for certain businesses to function.