The theme keeps repeating itself. Since 2022 NLPC presented shareholder proposals at U.S. companies’ annual meetings that sought increased transparency about their risks related to their significant exposure in China. Most of the initiatives were submitted under the title “Communist China Audit” and requested increased disclosure by companies, as to how much their dependence related to things like supply chains, market access, human rights, and other geopolitical issues, could harm investors’ interests.
All the proposals received weak shareholder vote support — meaning the investment stewards at places like BlackRock, Vanguard, State Street and Fidelity opposed such transparency — and thus the companies were allowed to skate on the issue. Since then companies including General Motors, Starbucks and Walmart have taken hits related to their China interests, leading us at NLPC to say…well, you know.
Tariffs weren’t specifically on the radar as these proposals were considered, but of course they were part of the geopolitical stew that made American companies vulnerable. The allegedly smart people who run these companies — like Apple‘s Tim Cook (pictured above at a Foxconn plant in China), who got caught with his pants down during China’s Zero COVID shutdown and cost the company millions of dollars in iPhone sales — are supposed to recognize that the concentration of production in one region or country is not advisable. Especially when your government business partners are communist.
Now, with this week’s news filled with President Trump‘s implementation of tariffs — hitting China especially hard — the Wall Street Journal is filled with stories that highlight how various U.S. companies have been blindsided. Here’s one:
In the years since President Trump’s first trade war with China, Beijing has built an arsenal of tools to hit the U.S. where it hurts. Now, it is getting ready to deploy them in full.
China is increasing tariffs on all U.S. imports to 84%, a response to new U.S. tariffs on Chinese imports of 104% that went into effect at midnight Wednesday. It also added six U.S. companies including defense and aerospace-related firms Shield AI and Sierra Nevada to a trade blacklist, and imposed export controls on a dozen American companies including manufacturer American Photonics and BRINC Drones…
The toolbox underscores leader Xi Jinping’s capacity to engage in a prolonged economic warfare with the U.S. As both capitals appear to move toward decoupling, it also highlights the ever-rising risks for U.S. companies operating or investing in China, or simply trading with the country…
“China has systematically put together a new arsenal of tools that’s intended to minimize the cost to China and maximize the pain on the U.S.,” said Evan Medeiros, a former senior national-security official in the Obama administration and now a professor at Georgetown University. “They’re prepared in a way that gives them an asymmetric advantage in the trade war.”
China’s government and state media have taken a defiant tone, with the Commerce Ministry saying, “If the U.S. insists on its own way, China will fight to the end.”
About 70% of roughly 40 members of the U.S. Chamber of Commerce that responded [to a survey] said they plan to maintain or increase engagements in or with China. In addition, over 60% of 126 members of the Association of Corporate Counsel, a group for legal professionals at corporations, indicated the same intention.
Meanwhile, 83% of 56 Chamber respondents cited China as the top “geography of concern” and 70% of 165 respondents from the counsel association did.
One of their top concerns over China, the report shows, is Beijing’s national-security agenda. Businesses worry about raids, investigations and other hostile actions; China’s own innovation drive that threatens to squeeze out foreign companies from a market they help build; and growing instability across the Taiwan Strait. (These are all specific examples cited in multiple reports filed by NLPC with the Securities and Exchange Commission)
“For me, my agenda is No. 1: China. No. 2: China. No. 3: China,” a risk-management executive was cited by the report as saying.
Few companies have capitalized on a globalized economy better than Apple. So the end of the globalized economy has painful implications for the iPhone maker.
That helps explain why Apple’s stock price has fared the worst among megacap techs since President Trump’s announcement last week of shockingly high tariffs. Those goods include nearly every hardware product of the $300 billion worth that Apple sells every year.
The result: Apple has shed 21% percent of its market value since Trump’s announcement, which includes a bump Wednesday. The other five tech companies valued over $1 trillion have averaged a drop of around 9% over that time. The slide even cost Apple its crown as the world’s most valuable company by Tuesday’s closing bell.
Investors have done the simple but brutal math: Tariffs would raise Apple’s cost of sales, which in turn would lower the company’s gross profit margins…
Apple’s current P/E ratio is now down 19% since Trump’s tariff announcement. The company is reportedly planning to move more production to India but has yet to announce what actions it may take…
But with some estimates showing the iPhone’s build costs going up more than 50% with the new tariffs, Apple may be limited in how much of that increase it can pass through to customers. Eating some of that cost, though, is certain to give Apple’s investors even more indigestion.
The tech giant’s shareholders might not have been caught so much by surprise had they endorsed NLPC’s proposals the last couple of years. Pass the Rolaids.
