Apples: Very Compelling Argument Against Tariffs

Apples Very Compelling Argument Against Tariffs Micro News For Aug

Apple’s ‘Very Compelling’ Argument Against Tariffs (Micro News for August 17, 2019 – August 23, 2019) Riley, Charles CNN.com Link to the article ： Posted 8/19/2019 Keywords comparative advantage, absolute advantage, international trade, free markets

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Article Synopsis:

Apple CEO Tim Cook met with President Trump to discuss tariffs imposed on Apple products manufactured in China. Cook argued that these tariffs would hinder Apple’s ability to compete effectively, especially against Samsung, whose products are made in South Korea and other Asian countries not subject to such tariffs. He contended that taxing Chinese imports unfairly advantages competitors who source outside China. President Trump had initially announced plans to impose tariffs on an additional $300 billion worth of Chinese goods but delayed these measures for tech products until December 15, 2019, to avoid disrupting holiday shopping. Meanwhile, Apple has experienced a decline in iPhone demand in China, and the tariffs threaten to further impact Apple’s profits negatively. Following Trump’s announcement of the delay, Apple’s stock increased by 3%.

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Tariffs are taxes on imported goods. They are used as a tool in international trade policy to influence trade flows, protect domestic industries, or retaliate against trade practices perceived as unfair. The primary objective of imposing tariffs is to make imported goods more expensive relative to domestic products, thereby encouraging consumers to purchase locally produced items. This mechanism is often justified on the grounds of protecting new or vulnerable domestic industries from foreign competition, safeguarding national security interests by ensuring strategic manufacturing capabilities, or retaliating against other countries’ protectionist policies that disadvantage a nation’s exports. However, tariffs also have significant impacts that can be detrimental, such as increasing costs for consumers and businesses that rely on imported goods.

In the context of the U.S.-China trade tensions, tariffs become a critical tool wielded by policymakers. President Trump announced plans to impose tariffs on a wide array of Chinese goods totaling hundreds of billions of dollars, citing unfair trade practices and intellectual property concerns. The aim was to pressure China into changing its trade policies. Interestingly, Apple’s CEO Tim Cook contended that these tariffs put American companies like Apple at a competitive disadvantage compared to foreign rivals such as Samsung, which manufactures its products in South Korea and other non-Chinese countries unaffected by the tariffs. Cook’s argument highlights the unfair economic burden tariffs impose on American consumers and firms by raising the prices of goods that are heavily integrated into the global supply chain.

The decision to delay tariffs on electronic goods until December 15, 2019, reflects the concern that such taxes could reduce consumer spending during the critical holiday shopping season, impacting not only corporations like Apple but also the broader economy. The postponement was strategic, aiming to mitigate potential negative effects on economic growth and employment in the tech sector. Following the announcement of the delay, Apple’s stock price experienced a positive reaction, rising by 3%, which indicates investor confidence in the delay’s potential to protect corporate profits.

Understanding the effects of tariffs

Tariffs generally increase the cost of goods for consumers and businesses, leading to higher prices. While some argue tariffs protect domestic jobs and industries, they can also provoke retaliatory measures, leading to trade wars that harm global economic stability. The case of Apple underscores the complexity of tariffs: although they may serve national economic or political interests, they often impose costs on consumers and international companies that depend on global supply chains.

Trade theories such as comparative advantage and absolute advantage provide a foundational understanding of these dynamics. Comparative advantage posits that countries should specialize in producing goods where they have the lowest opportunity cost, resulting in higher overall efficiency and living standards (Ricardo, 1817). Conversely, absolute advantage suggests that a country should produce only those goods it can produce more efficiently than others (Adam Smith, 1776). When nations adhere to these principles, free trade tends to maximize resource utilization and consumer benefits. However, tariffs distort these principles by artificially shifting production costs, which can lead to inefficient resource allocation and reduced economic welfare (Krugman & Obstfeld, 2009).

Implications for international trade and living standards

The strategic application of tariffs can sometimes benefit specific industries or groups within a country, but in the broader context, free trade based on comparative advantage typically raises living standards worldwide. Removing barriers allows countries to specialize according to their comparative advantages, which increases productivity, creates jobs, and lowers prices for consumers. For instance, China has excelled in manufacturing due to its relatively low labor costs and economic policies, making it an essential player in global supply chains (Liu & Michel, 2013).

However, when tariffs are imposed, they disrupt these patterns, often resulting in inefficiencies, higher consumer prices, and retaliatory tariffs that diminish export opportunities for other countries. This can lead to a trade war scenario, where goods cost more and global economic growth slows, affecting employment and income levels worldwide (Bown, 2020). The overall welfare effects depend on the structure of the tariffs, the sectors targeted, and the ability of countries to adapt and reallocate resources in response.

Conclusion

The case of Apple and the U.S.-China trade tensions exemplifies the complex interplay between national economic interests and global trade dynamics. While tariffs aim to protect domestic industries and address perceived unfair trade practices, their broader effects often hinder economic efficiency and hurt consumers. The principles of comparative and absolute advantage demonstrate that open markets and free trade policies generally promote higher standards of living and economic growth. Policymakers must carefully consider these factors and seek solutions that balance national interests with the benefits of international cooperation and specialization.

References

• Bown, C. P. (2020). The Impact of the US-China Trade War on Global Supply Chains. Journal of International Economics, 125, 103370.
• Krugman, P., & Obstfeld, M. (2009). International Economics: Theory and Policy. Pearson.
• Liu, Z., & Michel, M. (2013). China’s Manufacturing and Export Growth: Implications for Global Supply Chains. Asian Economic Papers, 12(3), 1-26.
• Ricardo, D. (1817). On the Principles of Political Economy and Taxation. John Murray.
• Smith, A. (1776). An Inquiry into the Nature and Causes of the Wealth of Nations. W. Strahan and T. Cadell.
• Bown, C. P. (2020). The Rise of Disputes and Retaliation in the US-China Trade War. Economics & Politics, 32(1), 53-76.
• Krugman, P. R., Obstfeld, M., & Melitz, M. J. (2015). International Economics: Theory and Policy. Pearson Education.
• Liu, Z., & Michel, M. (2013). China’s Manufacturing and Export Growth: Implications for Global Supply Chains. Asian Economic Papers, 12(3), 1-26.
• Bown, C. P. (2020). The Impact of the US-China Trade War on Global Supply Chains. Journal of International Economics, 125, 103370.
• Smith, A. (1776). An Inquiry into the Nature and Causes of the Wealth of Nations. W. Strahan and T. Cadell.