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Macro Intelligence: China-US trade dispute and Apple's $200 billion bite in latest developments

Explore the latest developments in the China-US trade tensions and their significant influence on Apple's market value. Dive into the repercussions and economic outlook, as ANZ assesses the risk to the Australian economy.

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Article by Juliette Saly

In this week's edition of IG Macro Intelligence, we delve into the escalating trade dispute between China and the US. Discover how this geopolitical struggle is unexpectedly affecting Apple's financial fortunes. From policy clashes to bans on Apple devices, we dissect the $200 billion dent in Apple's value and the broader implications for tech companies in this volatile climate.

Biden and Li's diplomatic dance: G20 summit aims to thaw US-China trade iceberg

US President Biden met with Chinese Premier Li Qiang at the annual G20 summit in New Delhi this past week, as the two superpowers attempt to thaw frosty relations. The world’s two largest economies have been embroiled in a range of trade disputes since 2018 when then-US President Trump imposed additional trade tariffs on Chinese goods.

Since then, bilateral relations have further deteriorated with the imposition of additional tit-for-tat sanctions and trade restrictions. Trade between the two countries continues to decline as broadly expected, with bilateral trade during the first eight months dropping 8.7 percent year-on-year.

Change in dollar-dominated exports and imports (YoY) chart

Source: Reuters

China's economic jitters: Export tensions escalate, imports slow down

Recent data revealed that ongoing tensions are a contributing factor to China’s economic slowdown, as exports and imports experienced a decline in August. Exports declined by 8.8% in August year-on-year, as per customs data, following a significant 14.5% drop in July.

Meanwhile, imports contracted by 7.3%, which was slower than the expected 9.0% decline and last month's 12.4% fall. Economists suggest that additional policy support may be necessary, although deflationary pressures have eased.

China's PPI and CPI in August chart

Source: Reuters

Tech titans clash: Huawei to TikTok, China-US tensions reshape markets

So, why is Apple a target? Their shares lost $200 billion in value last week after the Chinese government reportedly banned government employees from bringing their devices to work.

Japan's Nikkei news reported that at least one state-owned company had informed its employees that anyone working with trade secrets could not bring their iPhones, Apple Watches, or AirPods into work from next month.

China's state-owned companies employ more than 56 million people, and the reported ban sent Apple shares tumbling, although some analysts say the sell-off was overdone.

The move comes after US Federal agencies banned their employees from using the TikTok app on government-provided devices amid concerns of spying. Washington has also prohibited US companies from conducting business with numerous Chinese tech firms, including Huawei, and has restricted US chipmakers from selling advanced tech to China.

The ban does not prevent ordinary Chinese citizens from purchasing the latest Apple products but underscores the growing tension between state control and China's economic future.

Apple weekly chart

Source: IG

Apple YTD chart

Source: IG

Navigating the China challenge: Albanese government's role in economic stability

ANZ views China as a significant risk factor for a slowdown in the Australian economy, which is likely to exert dominant pressure on inflation. Chief Economist Shane Oliver asserts that consumers will bear the brunt of this situation, and the overall economy is also vulnerable due to China's status as our largest export market.

However, he suggests that our improving relations with China under the Albanese government may provide some relief, and any adjustments to growth are expected to be gradual, mirroring the trend since tensions escalated in 2018.

Australians real GDP per capita growth chart

Source: ABS, AMP

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