President Donald Trump huffed and he puffed, but in the end, it was him – not the target of his Twitter outburst – that was forced to back down. And the market-friendly conclusion to this political standoff could bode well for a Dow Jones Industrial Average constantly under pressure from the trade war.
That’s what you’ll find if you read between the lines of Apple’s latest self-congratulatory press release, which touts its commitment to “American innovation” alongside photographs of smiling American workers who just happen to be standing in front of an American flag at an American manufacturing plant that almost lost Apple as a client thanks to American tariffs.
Aside from making sure that you (and President Trump) associate “Apple” with “America,” the announcement reveals that Apple has nixed plans to stop producing its Mac Pro on US soil, reversing course after securing tariff exemptions from the Trump administration.
“We thank the administration for their support enabling this opportunity,” Apple CEO Tim Cook said.
Less than two months earlier, President Trump had unleashed a devastating tweetstorm aimed at Apple and Cook, vowing that he would not grant the company’s application to exempt the Mac Pro from tariffs as long as the device utilized Chinese components.
“Apple will not be given Tariff waiver, or relief, for Mac Pro parts that are made in China,” Trump said. “Make them in the USA, no Tariffs!”
But the White House quietly broke that promise over the weekend, granting tariff exclusions for the Mac Pro – which still uses parts originating in China.
Trump hasn’t explained his apparent about-face, but it can’t be lost on him that Apple is the fourth most heavily weighted component in the Dow Jones Industrial Average.
More than that, Apple is the best-performing Dow stock so far in 2019.
Apple has surged nearly 39% year-to-date, which isn’t too shabby for a large-cap stock worth roughly $1 trillion.
It’s even more impressive considering how severely the trade war threatens Apple’s profit margins.
Wedbush Managing Director Dan Ives says that the trade war is a “nightmare that will not go away” for Apple investors. Ives says that US tariffs represent a “$20-25 stock overhang” on AAPL shares. That’s ~10% at current prices.
With trade talks more or less in a holding pattern, investors appear to be ignoring that threat, confident that Washington and Beijing will strike a trade deal before the 2020 election.
But with that election looming, a threat that substantial to one of the Dow’s biggest stocks isn’t one that Trump can afford to ignore.
Rightly or wrongly, voters treat the economy and the stock market as twin referenda on the success – or failure – of a president’s domestic policy.
However, even as presidents go, Trump is unusually attuned to the Dow’s day-to-day movements. He boasts when the stock market bellwether is up, and he frantically searches for a scapegoat when it’s down. On occasion, he’s reacted to precipitous market sell-offs by dramatically altering his stance on major policy matters like the trade war.
Or, in this case, quietly backing down from a threat to withhold a tariff exemption from a US company caught in the middle of the trade war.
It’s a small victory, to be sure. The $5,999 Mac Pro accounts for a minuscule portion of Apple’s revenue.
There’s a much bigger fight coming on Dec. 15 when iPhones, iPads, MacBooks and other major Apple products are scheduled to fall subject to new tariffs. Altogether, Reuters estimates that 92% of Apple products made in China could face tariffs before the end of the year.
However, following his stealthy Mac Pro U-turn, Dow bulls can afford themselves a bit more optimism that Trump will flinch again.