Tim Cook Shows Trump That Tariffs Indiscriminately Harm Everyone

President Trump virtually conceded on the weekend that his tariffs on China are hurting U.S businesses - a 180-degree departure from his insistence that U.S tariffs somehow help the United States.

But two big questions remain: Does he actually realize that he walked back his previous claims about the benefits of tariffs? And how long before he returns to touting the benefits of tariffs?

Trump has continually argued that his tariff taxes are good for the United States because of the revenue they garner for the federal government, denying what anyone familiar with trade knows - a country’s tariffs hurts its own producers, middlemen and retailers.

Trump made the concession after a meeting with Apple CEO Tim Cook. Apple is one of the biggest potential losers from tariffs on China, since the company conducts so much of its production in that country. Cook made his case to Trump, and the latter indicated he had been impressed by the arguments.

Trump said that Cook had “made a very compelling argument” that U.S tariffs on China would undermine Apple in competition with South Korean-based Samsung, during a dinner the two had Friday at Trump’s golf club in Bedminster, New Jersey.

Most of Apple’s production is conducted in China. The company is slated to pay an additional 10 percent import tax on September 1st on such products as the Apple Watch and AirPods, although a tax hike on iPhones, iPads abs MacBook has been delayed until December 15th. Samsung, with a more diversified supply chain, would not have to pay the tariffs, or pass them on to consumers, because most of their production is pursued in South Korea and Vietnam.

This was not the first time Trump has appeared to concede the negative impact of his tariffs on domestic producers, retailers and consumers. Trump has said that he is postponing the tariffs on many products until mid-December because of the downside impact on retailers during the Christmas shopping season.

In pointing out that Apple and other U.S companies are undermined by the import taxes, Cook was just giving Trump a small taste of the impact of globalization in a world dominated by cross-border supply chains, the need for the most efficient production possible, and a huge variation in the cost of production in different countries. Cook’s point merely illustrates the fact that today’s world has many bumps and contours. This has simply made market economics more important than ever - and any national government ignores that fact at its own peril.

The Trump import tariffs have served as an illustration of the need to pursue free trade, especially in a world characterized by complex trading relationships. The tariffs have provoked predictable counter-measures from affected countries, and has particularly undermined U.S manufacturing, now in virtual recession, and farming. But they have also sideswiped important allies such as trade-dependant Israel, whose biggest trade partners last year were the United States and China.

Israel’s exports are equivalent to about 30 percent of its GDP, a far higher proportion than the United States or China, with much of its export activity in pharmaceuticals and electronics. Israel’s economy grew a paltry 1 percent last quarter, a steep decline from its 4.7 percent increase in the previous quarter. Exports and imports were both down, as were investment and consumer expenditures. Bank of Israel research has prompted the central bank to revise downward expectations for economic growth, based on export performance.

The impact of the tariffs on Israel is matched by the weakening of the economic performance of all trade-dependant economies. The tariffs on China are also undermining the economy of traditional U.S ally Europe. Germany, which off-loads much of its production to Eastern European countries, is especially vulnerable to trade shocks. But the lynchpin of the European economy reported in June an 8 percent annual fall in exports and a 1.5 percent year-over-year decline in industrial production. How well the United States economy performs depends on the economic performance of important partners like Germany.

Germany’s recorded its dismal economic indicators despite the fact that German trade with both China and the United States has held up reasonably well. However, the dent in investor and business confidence has delayed investment decisions and circumscribed business expansion plans.

It is a complicated world. Cook seems to have tried to simplify it for Trump, focusing on the obvious impact of one aspect of one policy decision on one company. But Apple is far from an outlier. The threats and challenges it faces from the tariff increases are common to all companies. It’s not a big intellectual leap to make. But will Trump make it?