At the end of last week Apple shed over $200 billion in market value. Its decline rendered it the worst performing member of the Dow Jones Industrial Average.
Why the correction in its share price? It’s always a bit of a fool’s errand to explain the movements of shares processing endless amounts of news from all over the world, but the most frequently cited culprit for Apple’s woes involved China. Various media accounts (since walked back) indicated the Chinese government was leaning toward banning the use of iPhones by government-backed agencies and companies.
Keep this in mind with the geography of iPhone sales top of mind. At present, Apple sells a fifth of its iPhones in China. In which case any moves by Chinese officials to limit Apple’s growth in China are naturally going to have an outsize impact on the company’s share price. There are some lessons to be learned from Apple’s correction.
For one, “the only closed economy is the world economy.” That’s what the late Nobel Laureate Robert Mundell used to remind his many followers. There’s quite simply no escaping the happy fact that the fortunes of the individuals who comprise what we call the world economy are very much linked. Put another way, when China gets sick, we Americans similarly catch a cold.
Figure that it’s not just Apple which is very much reliant on Chinese growth. Two-thirds of the elevators sold by Farmington, CT-based Otis Elevators can be found in skyscraper-dense Chinese cities, while Seattle, WA-based Starbucks can lay claim to 6,500 stores on China’s mainland. If you’re a multi-national U.S. company aiming to achieve high returns for your shareholders, chances are that you have a big – and growing – China presence.
Which leads to the second point. Politicians on both sides of the ideological divide continue to make China their rhetorical and policy whipping boy. While President Biden likely doesn’t agree with his predecessor in the White House on much of anything, it’s notable that nearly three years into his presidency, Biden hasn’t reversed the tariffs that Donald Trump levied on various Chinese goods. Biden and Trump would have profited from time with Mundell.
As evidenced by how popular American brands are to Chinese businesses and consumers, any attempt to economically harm the Chinese will logically have boomerang-like qualities. If the Chinese are struggling, so are we.
All of which brings us to one other potential catalyst for Apple’s correction. In concert with Commerce Secretary Gina Raimondo’s recent visit to China, Shenzhen-based Huawei Technologies released the Mate 60 Pro, a smartphone that by all accounts largely measures up to other, more established players in what is a huge market. The Mate 60 suggests that ban or no ban, Apple may face more formidable competition for the Chinese consumer in the future.
Better yet, the very high quality of Huawei’s newest smartphone is a fairly prominent signal that contrary to conventional thought in the U.S., Huawei is not run by the Chinese Communist Party (CCP). Really, when in world history have government-run corporations ever competed in terms of quality with the world’s most valuable companies?
Except that after last week, Apple’s crown as the world’s most valuable company is at least somewhat in question. And the question is rooted in politics. While the individuals who staff corporations in China and the U.S. continue to work feverishly to meet the needs of the American and Chinese people, their political leaders continue to raise the political temperature, including accusations that innovators are untrustworthy agents of government. Let’s hope the people win this argument. If not, the "closed" world economy will have its say in ways neither the people nor politicians will like.