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Fighting over TikTok

(Wed, 12 Aug 2020). Wall Street is beginning to worry about possible retaliation from China over President Trump`s TikTok ban. A potential ban on TikTok in the United States could have serious repercussions for U.S. firms with interests in China.

Wall Street is worried that China could retaliate against the U.S. over the TikTok ban. China’s retaliation wouldn’t spare Tesla and Apple. China is a significant market for the two companies. There is more at stake following President Trump’s threat to ban TikTok than just the loss of an addictive video app.

U.S. tech firms heavily invested in China, such as Tesla (NASDAQ:TSLA) and Apple (NASDAQ:AAPL), are potential casualties if the world’s second-largest economy decides to retaliate. While there are several U.S. firms invested in China, Apple and Tesla stand out. They are increasingly relying on China both as a market and as a manufacturing hub.

 

How Apple Would Be Affected by Chinese Retaliation

China is Apple’s second-largest market for iPhones after the U.S. It is also one of the fastest-growing markets for the iconic smartphone. In the June quarter, iPhone sales in China surged by 62% annually and 225% quarter-on-quarter. The surge was driven in part by the more affordable iPhone SE. The world’s most valuable public company enjoyed record iPad and services revenue in China in the June quarter. Relative to other markets, about 16% of Apple’s worldwide revenues in the third quarter came from Greater China.

China is not just a market for the tech giant–most of Apple’s products are assembled in the Asian country. Apple’s largest supplier is Foxconn, which has 29 out of 35 supplier locations based in Greater China. Rounding up the top three Apple suppliers are Wistron and Pegatron. They, too, have the majority of their supplier locations based in the Greater China region.

 

What Tesla Stands to Lose

Tesla would also be negatively affected by Chinese retaliation. In the second quarter, about a third of Tesla’s deliveries were cars sold in China. Last month, the electric carmaker continued to dominate in the sale of battery electric vehicles. In July, Tesla sold 11,014 cars to lead in the category by a wide margin. Outside of the U.S., China is currently the only other country housing Tesla production. Now, the Shanghai plant boasts of around 29% of Tesla’s total installed annual capacity.


Tit-for-Tat Over TikTok

Fears of China retaliation against U.S. firms over the TikTok ban are not baseless. Immediately following President Trump’s ultimatum to TikTok to sell itself to an American firm, the move was branded a “smash and grab” of a Chinese tech company. Chinese state media warned of possible retaliation. Negative opinion of the U.S. among Chinese is growing, too. This was demonstrated by a recent survey by the English-language version of the Chinese Communist Party’s People Daily. According to the poll, Chinese citizens would overwhelmingly support their government’s actions to retaliate against the U.S. Due to “U.S. provocations,” 95% of Chinese netizens recently indicated they would support retaliation against the world’s largest economy. Despite Apple and Tesla’s massive investments in China, nationalistic-driven disputes on both sides of the Pacific threaten to spoil their party.

 

 


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