One of President Donald Trump’s top economic advisers suggested Thursday that Apple’s shock announcement downgrading its revenue outlook for the holiday quarter was only the first in a series of ugly corporate revelations coming as a result of the US-China trade war.
Kevin Hassett, the chair of the White House Council of Economic Advisers, told CNN that Apple’s sales drop in China — which the company pointed to as the primary reason for the revenue shortfall — would only represent the start for US companies.
“It’s not going to be just Apple,” Hassett said. “There are a heck of a lot of US companies that have sales in China that are going to be watching their earnings being downgraded next year until we get a deal with China.”
Apple said Trump’s tariffs on Chinese products are contributing to an economic slowdown in the country. In turn, Chinese consumers are not buying Apple products, Apple CEO Tim Cook said in an interview with CNBC on Wednesday, which he said harmed the company’s overall sales.
“And what I believe to be the case is the trade tensions between the United States and China put additional pressure on their economy,” Cook said.
In Hassett’s reading, other US firms with significant sales to China will also be harmed by the slowdown, leading to a slew of ugly earnings surprises.
Despite the ostensible bad news for American companies, Hassett explained that the pain actually gives Trump a better negotiating position in the ongoing trade talks with Beijing.
“That puts a lot of pressure on China to make a deal,” he said.
The US and China are currently negotiating a deal as part of a 90-day truce that expires on March 1. Prior to the truce, the US placed tariffs on $250 billion worth of Chinese goods and Beijing responded with tariffs on $110 billion worth of goods. While Apple has so far been spared from the direct cost of tariffs, the indirect impact of the trade war clearly took its toll on the company.
Beyond the earnings worries, Hassett also downplayed concerns about the market’s reaction to the Apple news— and the potential for more announcements of a similar nature — as a short-term concern. He argued that strong US economic fundamentals will win out in the long run.
“So when we settle the trade issues with China, then people will go back to focusing on the long run growth that absolutely is going to return to probably a higher level once we fix this problem with China,”Hassett said.
Meantime, US markets were sharply lower on Thursday, with the Dow Jones Industrial Average off nearly 540 points, or 2.3%, the S&P 500 down 43 points, or 1.7%, and the tech-heavy Nasdaq down 125 points, or 1.9%, as of 11:15 a.m. ET.
As for Apple, the stock tanked after the announcement and was down nearly $14 a share, or 8.9%, on Thursday.