Could A Trump Presidency Spell Disaster For Apple?

by Clement Thibault

During the first presidential debate this past Monday, Republican nominee Donald J. Trump attacked the Ford Motor Company (NYSE:F) for their investments in Mexico and the company’s plans to produce automobiles south of the border. But Ford isn’t the only US company drawing the Donald’s ire.

Recently, Apple (NASDAQ:AAPL), the world’s most highly valuated company by market cap, as well as the innovative producer of iPhones, Macs and other digital devices and related software, has been making headlines alongside Mr. Trump as well. The improbable pair don’t seem to be getting along very well, for a variety of reasons. Since the beginning of the year Trump and Apple (via CEO Tim Cook) have traded jabs on multiple occasions.

Are Trump and Apple on a collision course?

It certainly seems that way.

Trump initiated the skirmish in January, singling out Apple for its decision to manufacture abroad. In February, he called for a boycott of Apple products after the company refused to unlock the iPhone of the San Bernardino gunman who killed 14 people and seriously injured 22 others. In March, Trump’s hot, Apple-related topic was H-1B visas—a legal but increasingly unpopular vehicle commonly used by technology (and other) companies to employ non-U.S. workers who ostensibly have specialized skills.

Apple responded in June by refusing to provide support for the GOP convention, citing Trump’s views as the reason. Adding fuel to the fire by dissing Trump even more blatantly, over the course of the summer, Tim Cook personally hosted a number of of fundraisers for Republican Speaker of the House Paul Ryan and Democratic Presidential nominee Hillary Clinton, both staunch Trump adversaries.

The confrontation began in January with Trump’s strongly worded declaration on trade and manufacturing. The Republican nominee said he believes that the United States is at a disadvantage to China, which, he says is conducting “financial blackmail” through currency manipulation.

Unlike western economies which rely on free market pricing, China’s currency exchange rate is set by its central bank, which has been devaluing the yuan at what some analysts say is an accelerating pace. It’s a government initiated economic policy that aims to insure that Chinese exports remain competitive. Currently, the yuan’s value is close to a five year low.

Trump’s view is that the devaluations have weakened the U.S manufacturing sector, causing the loss of “tens of millions of American jobs.” Apple, through Foxconn Technology and Pegatron Corp., among others, is manufacturing its iPhones in China, an obvious sore point with Trump, and a clash-point trigger between the Republican candidate and Apple.

 

In a speech at Liberty University, in Lynchburg, Virginia on January 18th, Trump singled out the world’s most profitable company, aggressively declaring:
“We’re going to get Apple to build their damn computers and things in this country, instead of in other countries.”
Taking into account only manufacturing wages, this could pose a huge problem for Apple. The average annual manufacturing wage, per person, in China is 55,324 yuan, or $8,281 U.S. In comparison, on a 40-hour-per-week basis, the average manufacturing job in the U.S pays about $42,000, a little more than five times what Apple currently pays its China-based outsourced workers.

Though It isn’t clear exactly how many Foxconn or Pegatron employees are manufacturing iPhones, consider this: given that Apple sold over 230 million units last year, and that Motorola’s (NYSE:MSI) now-shuttered Fort Worth, Texas plant employed more than 2,000 workers to produce about 5 million smartphones a year, a logical guesstimate would indicate there are about 100,000 Chinese employees working on Apple products in order to meet market demand. Motorola’s U.S. plant was closed in 2014 for reasons that included high costs.

Using that metric, the potential cost to Apple of relocating its manufacturing operation to the U.S. would be prohibitive and likely impossible. Ditto for Trump actually succeeding at imposing a barrier on off-shore manufacturing or additional penalties on iPhones manufactured in China.

In fact, during a conversation with Barack Obama in 2011, the late Steve Jobs stated quite clearly:
“[Manufacturing] jobs aren’t coming back [to the U.S.] because China now has the world’s most sophisticated manufacturing infrastructure”.
Just a month after Trump’s comments on manufacturing, the Trump-led fracas took another turn. In February, in the wake of the San Bernardino terrorist shooting last December, Apple and its CEO, Tim Cook, refused to honor a court order to unlock the perpetrator’s iPhone, saying the order would threaten the security of all iPhone users. Many Americans, including Trump, viewed the refusal as unpatriotic.

 

During a South Carolina rally, Trump called for a boycott on Apple products. In a subsequent Bloomberg interview, he said:
I would come down so hard on him [CEO Cook]—you have no idea—his head would be spinning all of the way back to Silicon Valley.

The Republican nominee escalated the conflict with Apple (as well as much of the rest of corporate America) yet further in March, while airing his views on immigration reform and in particular, the country’s H-1B visa program which allows U.S. companies to employ foreign workers who are skilled in specialty occupations, if their expertise can’t easily be found within the U.S. workforce. During Fiscal Year 2014, according to a United States Citizenship and Immigration Services (USCIS) report, over 313,000 foreign workers benefited from H-1B visa status, 64% of them employed in “computer-related occupations.”

While tech companies are pushing for the government to expand the program, opposition to bringing in foreign workers—who are often perceived to be replacing U.S. employees at lower wages—has grown among the general populace. Trump actively commandeered this bandwagon by saying he’d end the program if elected. “I know the H-1B very well…we shouldn’t have it. It’s very, very bad for workers.”

He later softened his stance, saying the country should continue to attract skilled workers, but he’s nonetheless calling for a “pause” in issuing H-1B visas while at the same time increasing the wages of H-1B workers to minimize the corporate incentive for hiring them. With 4,020 applications for H-1B visas sponsored by Apple between 2013 and 2015, it is ranked #20 among all visa sponsors, though other technology giants such as Intel (NASDAQ:INTC), Amazon (NASDAQ:AMZN) and IBM (NYSE:IBM) are ahead in the number of applications.

Apple’s initial response to Trump’s baiting occurred in July, at the GOP convention. After contributing equally to both Republican and Democratic conventions in the past, Apple decided it would not provide neither funding nor any technical support, to the GOP’s 2016 convention. According to Politico, the decision was made in response to Trump’s comments on women, immigrants and minorities, though given the candidate’s repeated potshots at Apple, it’s conceivable the company had a few other reasons as well.

Apple’s Cook also hosted two fundraisers in the past months, both to benefit Trump rivals. In late June a private breakfast to raise funds for Paul Ryan as well as other select House Republicans was co-hosted by Cook and the company’s treasurer Gary Wipfler. In late August he and fellow Apple executive Lisa Jackson hosted a fundraiser for Hillary Clinton.

The technology industry in general has favored Clinton with around $4 million dollars in donations from Silicon Valley companies and executives, as opposed to less than $200K for Trump. (Reportedly Alphabet (NASDAQ:GOOGL) gave Hillary $600k, and Apple was among the top 10 contributors to the Democratic nominee’s campaign.)

Tempest in a Teapot or Potentially Troubling Vendetta?

There are some who believe that a Trump presidency would be beneficial for Apple, because he supports lowering corporate tax rates in order to incentivize companies to relocate back to the US. Apple, which keeps a hoard of over $200 billion in cash in Ireland in order to benefit from that country’s lower corporate tax rates, is perhaps one of the biggest beneficiaries of this tax ‘loophole.’

Nevertheless, we believe it’s obvious there’s bad blood between Donald Trump and Apple. If you follow the money, there’s yet another layer to the story. Trump’s largest stock market holding, according to Fortune Magazine is… Apple. His stake in the company has been estimated to be worth as much as $1.25 million.

 

 

At first glance, this might actually soothe jittery Apple investors. Why, after all, would Trump deliberately do damage to his own pocket? But according to the same Fortune report, in July 2015 Trump held as much as $6.5 million dollars worth of Apple shares. Taking into account that Apple shares have lost about 10% since then, the numbers still suggest Trump has been actively dumping Apple over the past year.

Is this a tempest in a teapot or should Apple shareholders be concerned? Though Trump is famously bombastic, and known to shoot-from-the hip in order to garner maximum media coverage, we think it’s worth keeping a sharp eye on the situation.

If Apple is part of your portfolio, or you intend to acquire shares of the company before November, you might want to consider what happens if Trump wins on Tuesday, November 8. Though he hasn’t offered voters much in the way of hard policy details thus far, the ongoing friction that seems to have developed between the Republican candidate and the Silicon Valley company touches on too many of Trump’s most notorious talking points for making America great again. If Trump wins, then proceeds to act on even some of the items he’s called out Apple for, we can’t see how it ends well for Apple, or the rest of the tech sector.

 

Source: Investing.com

 

Yours,

Vladimir

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