THE TICKER

Don’t tell Apple the latest U.S.-China trade truce means the fight is settling back into a cold war. The conflict between the world’s two largest economies remains as hot as ever for the tech giant. 

The mini-deal the Trump administration is touting this week as the foundation for the next round of talks doesn’t offer anything to the company. Its marquee iPhone, assembled in China, still stands to get slapped with a 15 percent tariff due to hit in December, turning up the pressure on CEO Tim Cook to win another reprieve from the White House. 

Meanwhile, the company has been turning somersaults across the Pacific to avoid angering Beijing. It has taken a number of steps to keep its products from being used as tools of dissent from the mainland to Hong Kong: telling Apple TV developers there to steer clear of material that would offend the government; obscuring the Taiwanese flag from emoji on Hong Kong phones; deleting an app Hong Kong protesters used to avoid the police; and removing the Quartz news app from the Chinese app store for covering the protests. 

The plight of the company highlights the complexity for U.S.-based multinationals of navigating the trade war’s constantly shifting terrain. Corporations with billions of dollars invested in Chinese supply chains find themselves at the mercy of Trump’s mercurial approach, forcing difficult decisions about whether to pull up stakes and move production out of China or hope for a peaceful resolution that restores the status quo. 

Apple, which recently reclaimed its crown as the largest company in the world by market capitalization, has met the challenge by transforming into a lobbying juggernaut. Cook, who endorsed Hillary Clinton in 2016 and was an early, vocal critic of Trump’s approach to immigration, climate change and transgender troops, has established himself as a regular in Trump’s inner orbit. The president on the campaign trail in 2016 urged a boycott of Apple products and threatened to send Cook's head “spinning all of the way back to Silicon Valley.” Trump now calls him a friend. The chief executive has also built relationships with Trump’s daughter Ivanka and her husband, Jared Kushner, both senior White House advisers. 

The charm campaign has paid off for the company, allowing Cook to successfully press the administration for tariff exemptions for several Apple products

As the Wall Street Journal’s Tripp Mickle recently reported

"With the threat of tariffs on iPhones approaching in August, Apple Inc. stood to lose billions of dollars in profit. Chief Executive Tim Cook reached out to one of his most important contacts in Washington, Jared Kushner.

Mr. Kushner arranged a call between Mr. Cook and his father-in-law, ... people familiar with the call said, giving the Apple chief a chance to explain how tariffs would increase iPhone prices and impair Apple’s ability to compete against rivals such as Samsung Electronics Co.

Within days, the Trump administration scaled back its tariff plan to exempt a swath of electronics products, including iPhones, saying it wanted to protect consumers ahead of the holiday shopping season. The call from Mr. Cook influenced the decision, a person close to the administration said."

That reprieve was only temporary, however, and now Apple is facing the threat that those same tariffs will take a bite out of the company’s bottom line in two months, just as it’s rolling out the iPhone 11. “They’re in a critical juncture,” Wedbush Securities analyst Daniel Ives tells me. “They’re in one of the most important iPhone cycles in the last few years, and the company is going through some growth challenges, especially in the smartphone market. That’s why these tariffs would be hitting at exactly the wrong time.”

Apple could absorb the cost of the tariffs initially but would soon pass them along to consumers, reducing domestic demand for the devices by about 10 percent, Wedbush estimates. 

The alternatives aren’t much more attractive. Moving production to the United States doesn’t appear feasible. A Bank of America analysis found manufacturing the devices in the United States would add 15 to 25 percent to their cost, “and, if passed on to consumers could lead to demand destruction.” And Ives says moving just 5 to 7 percent of the company’s Chinese production to Vietnam or India would take 18 to 24 months. “They’ve made their bed in China,” he says. 

The uncertainty is weighing on the company’s stock, with Apple investors demonstrating their sensitivity to developments in the broader trade war. When an agreement with Beijing that Trump administration negotiators framed as imminent fell apart back in May, for example, Apple’s share price tanked: 

The decision about whether the Trump administration exempts Apple products from the December tariffs should fall to U.S. Trade Representative Robert Lighthizer. But Cook has appealed directly to Trump, CNBC’s Kif Leswing reports

“I had a very good meeting with Tim Cook,” Trump told reporters after the pair had dinner in August at his Bedminster, N.J. property. “Tim was talking to me about tariffs, and one of the things, he made a good case, is that Samsung is their number one competitor and Samsung is not paying tariffs because they’re based in South Korea. And it’s tough for Apple to compete with a very good company that’s not.”

That level of apparent goodwill compels Ives to assign an 80 percent probability that Trump will excuse Apple products from the next tariff round. “They’re not out of the woods. It’s a fluid situation and continues to be a black cloud over the stock,” he says. “But they’ve been so strategic both within the U.S. and China. They’ve played nice in the sandbox.”

MARKET MOVERS

Manufacturing's slide continues. WSJ's Sarah Chaney: "U.S. manufacturing production fell in September, adding to evidence that slowing global growth and trade frictions are weighing on the economy.Manufacturing output, the biggest component of industrial production, fell 0.5% in September from a month earlier, the Federal Reserve said Thursday. Production at factories was in part dragged down by a strike at General Motors, but showed broad-based fragility... Weakness in the U.S. economy this year has largely been contained to manufacturing and business investment, but signs suggest the slowdown could be spreading."

  • Recession ahoy? Oxford Economics calculates the odds in a note to clients: "Our modelling of the likelihood of recession using three different approaches, including one based on the leading indicators, suggests a probability of around 30% over the next 12 months or so. However, this could change rapidly. A consumer slowdown alone would be unlikely to trigger recession. But a combined set of plausibly sized shocks to oil prices, equities, credit standards and emerging markets, plus an escalation of trade tensions, could well be enough to lead to recession."

BoJo's Brexit deal isn't done yet. The Post's Karla Adam and Rick Noack: "Finally! A Brexit deal! Prime Minister Boris Johnson confounded skeptics when he announced that Britain and the European Union had a new Brexit withdrawal agreement. But Brexit is not yet sorted. The next big showdown will come Saturday — 'Super Saturday,' as Britain’s media have called it — during a rare weekend session of the House of Commons...

"Tim Bale, a politics professor at the University of London, estimated that it was possible, but not probable, that Parliament would back Johnson on Saturday... Media outlets on Friday were crunching the numbers. The Financial Times predicted that Johnson would fall two votes short of winning; Sky News said he was four votes shy."

Chinese growth keeps slowing. WSJ's James Areddy: "Growth across the board cooled in the third quarter, despite some recoveries in industrial production and retail sales at the end of the quarter, according to data published Friday by the National Bureau of Statistics... Investment in fixed assets, a measure of construction activity that has long been a major economic driver but is becoming less so, was weaker in the first nine months... Chinese growth has been on a downward trajectory for the past several years."

Federal Reserve officials are heading into their meeting in two weeks likely to cut interest rates while debating whether they’ve done enough for now to vaccinate the economy against growing risks of a sharper slowdown.
WSJ
The United Automobile Workers said the tentative contract agreement would provide wage increases and improve the prospects of temporary employees.
NYT

TRUMP TRACKER

TRADE FLY-AROUND:

— China throws cold water on Trump claim about ag buys: “Trump claimed that he struck a ‘phase one’ trade deal with China on Friday and that the Chinese agreed to massive purchases of U.S. farm products. But nearly a week has passed, and China has not confirmed that critical piece of the agreement,” my colleague Heather Long reports.

“According to the White House, a key part of Trump’s initial deal is China’s commitment to buy $40 billion to $50 billion worth of U.S. agricultural products. But nothing was written on paper, and China’s Commerce Ministry would not confirm that figure Thursday, saying instead purchases would be made according to Chinese market needs.”

Why the gulf is a big deal:The dueling narratives from the White House and Beijing show just how far apart the two sides remain 18 months into a trade war that has brought the global economy to a perilous place and slowed the U.S. economy. Business leaders have halted investments because of the uncertainty.”

  • What it means for farmers: “China was routinely purchasing more than $20 billion worth of U.S. agricultural products a year before the trade war became heated last year, including a record $25.9 billion in purchases in 2012, according to U.S. Agriculture Department data. But sales to China tumbled to less than $10 billion last year and remain on track for a similar slump this year.”
  • And for Trump’s reelection chances: “Whether China picks up its agricultural purchases is likely to play a critical role in Trump’s popularity in states such as Iowa that depend heavily on soybean sales to China. Exports of soybeans to China were typically above $12 billion a year before the trade war, but that cratered to barely over $3 billion last year.”
  • The next few weeks are critical: “October is a key month for soybean harvests, and sales to China are typically heavy from October through January, according to the American Farm Bureau Federation, meaning the next few weeks will be telling about just how committed China is to increasing purchases.”

Trump advisors warn him on trade war risk. WSJ's William Maudlin and Nick Timiraos: "Trump’s top economic adviser last week arranged an Oval Office briefing with outside experts who warned the president that continued escalation of U.S.-China trade tensions could imperil the economy and hurt Mr. Trump’s chances for re-election, according to people familiar with the meeting."

The session, arranged by Larry Kudlow, included Stephen Moore and Lawrence Lindsey. Trump appeared to dismiss their warning: "Mr. Trump countered that the Federal Reserve shared blame for any signs of a downturn, and should be doing more to stimulate growth. Midway through the meeting, he called in one of his closest China advisers, Peter Navarro, a trade hawk who believes the U.S. has been far too accommodative with China."

— White House, Democrats not giving up on USMCA yet: “The White House and House Democrats are increasingly upbeat that the stalled U.S.-Mexico-Canada trade agreement can be amended and approved in Congress, despite the rancorous impeachment inquiry into [Trump],” Bloomberg News’s Erik Wasson reports.

“I think it will pass before Thanksgiving,” top Trump economic adviser Larry Kudlow said on CNBC Thursday morning ... U.S. Trade Representative Robert Lighthizer has intensified his meetings with a House Democratic working group to reach a USMCA deal.”

  • The latest from Pelosi: House Speaker Nancy Pelosi (D-Calif.) said at a news conference Thursday that she’s ‘optimistic’ about finishing work on the accord, but ‘we are not there yet.’ ”
Adam Silver, the N.B.A. commissioner, also said the financial fallout from Morey’s tweet supporting Hong Kong protesters has been “substantial.”
NYT

TRUMP WATCH:

— Trump will host G-7 at Doral, adding to emoluments allegations: “Trump has awarded the 2020 Group of Seven summit of world leaders to his private company, scheduling the summit for June at his Trump Doral golf resort in Miami, the White House announced,” my colleagues Toluse Olorunnipa, David A. Fahrenthold and Jonathan O'Connell report.

“That decision is without precedent in modern American history: The president used his public office to direct a massive contract to himself … Hosting the G-7 summit could become problematic legally for Trump because foreign governments would be paying money to his business, which Democrats have held is a violation of the foreign emoluments clause of the Constitution.”

"The deep state board staff, of course, has not been helpful," Kudlow said. "Oops, did I say that?"
Business Insider

POCKET CHANGE

— From The Post’s interview with Zuckerberg: “Facebook chief executive Mark Zuckerberg said in an interview he worries ‘about an erosion of truth’ online but defended the policy that allows politicians to peddle ads containing misrepresentations and lies on his social network, a stance that has sparked an outcry during the 2020 presidential campaign,” my colleague Tony Romm reports.

“‘People worry, and I worry deeply, too, about an erosion of truth,’ Zuckerberg told The Post ahead of a speech at Georgetown University. ‘At the same time, I don’t think people want to live in a world where you can only say things that tech companies decide are 100 percent true. And I think that those tensions are something we have to live with.’”

“Zuckerberg’s approach to political speech has come under fire in recent weeks. Democrats have taken particular issue with Facebook’s decision to allow an ad from [Trump’s] 2020 campaign that included falsehoods about former vice president Joe Biden and his son, Hunter.”

  • Why Zuckerberg is in Washington: His “appearance in Washington marks his most forceful attempt to articulate his vision for how governments and tech giants should approach the Web’s most intractable problems … Next week, Zuckerberg is set to testify at a congressional hearing that will probably serve as a wide-ranging review of the company’s business practices.”

Meanwhile, a Facebook co-founder is spearheading a major antitrust fund: “[Facebook co-founder Chris] Hughes and the organization he co-chairs, the Economic Security Project, announced the launch of a $10 million ‘anti-monopoly fund,” Tony reports.

“Backed by a series of high-profile philanthropies, including the George Soros-financed Open Society Foundations and the Omidyar Network, created by the founder of eBay, the new effort aims to shine a spotlight on competition and ‘move the issue from the margins to the mainstream,’ Hughes said in an interview … The investments could serve as an early counterweight to the millions of dollars that Facebook, Google and other big businesses, well beyond tech, spend annually to furnish research in their favor and stave off regulation.”

— Saudis delay world’s largest IPO: “Saudi Aramco has postponed the launch of its hotly anticipated initial public offering, the latest setback for what would be the world’s largest-ever stock market listing,” the Wall Street Journal’s Summer Said reports.

“The state-oil giant, which had been preparing to give the go-ahead to proceed with the share sale on October 20, is delaying the IPO until December or January, two people familiar with the matter said. Aramco executives now want to issue a prospectus and then market the IPO — after getting third-quarter figures on production, revenue and profit — to better sell the listing to investors, said people familiar with the reasons for delaying the IPO.”

— FedEx CEO dismisses Amazon’s rise: “Fred Smith bristles at any hint that FedEx Corp., the global delivery giant he built over four decades, could be disrupted by a player such as Amazon.com Inc.,” the WSJ’s Paul Ziobro reports.

“FedEx’s 75-year-old chairman and chief executive, the man who pioneered the business of moving packages around the world at lightning speed, is confronting some of the greatest threats to the company he founded. Global trade is slowing and tariff fights have companies rethinking supply chains. A key partner, the U.S. Postal Service, is struggling. Amazon has morphed from a customer into a competitor. The threats have sapped FedEx’s finances at a time when the Memphis-based company is racing to adjust to modern delivery demands.” (Amazon CEO Jeff Bezos owns The Post.)

— Juul halts some online sales: “Juul Labs Inc. is halting online sales of its sweet and fruity e-cigarette refill pods as federal regulators prepare to pull most nicotine vaping products off the market in response to a surge in teen vaping,” the WSJ’s Jennifer Maloney reports.

“The San Francisco startup last year stopped sales of such flavors — including mango, fruit and cucumber — in bricks-and-mortar stores but had until now continued to sell them on its website, which has age controls. Juul’s online sales represent less than 10% of its revenue. In the first half of 2019, Juul had $1.27 billion in global revenue, including more than $100 million outside the U.S., according to people familiar with the matter.”

— Johnson & Johnson agrees to $117 million settlement: “Johnson & Johnson has agreed to pay nearly $117 million to resolve allegations that it deceptively marketed transvaginal surgical mesh devices, U.S. state attorneys general said,” Reuters’s Tamara Mathias and Nate Raymond report.

“The settlement resolves a multistate investigation that found J&J violated consumer protection laws by misrepresenting the safety and effectiveness of its devices and failing to sufficiently disclose risks associated with their use, the attorneys general said.”

— Goldman pushes revamp of trading business: “Over the past decade or so, Goldman Sachs Group Inc has watched its annual trading profits fall a whopping 84%, as post-financial crisis regulations upended Wall Street. Now, bank executives are hoping they have figured out the key to a turnaround: asking traders to be more like investment bankers,” Reuters’s Elizabeth Dilts Marshall reports.

“Over the past year, Chief Executive David Solomon and his leadership team have given the trading business a fresh mandate. They have replaced top trading executives, invested heavily in automation and turned Goldman’s securities platform, called Marquee, into a product that can be sold to customers, according to interviews with six bank insiders.”

  • And is slashing salaries: “Goldman Sachs is on track to pay its employees the lowest of any year in at least the past decade, and executives warned that the trend will continue as software consumes more of the firm’s businesses,” CNBC’s Hugh Son reports. “The bank set aside 35% of its revenue for staff compensation and benefits so far this year, the lowest since at least 2009, according to an analysis of Goldman’s data.”

DAYBOOK

Today:

  • Coca-Cola and American Express the notable companies to report their earnings, per Kiplinger.

THE FUNNIES

From The Post's Tom Toles:

BULL SESSION