foxex: Why The Market Thinks Trump Tariffs Will Help Apple and Hurt Amazon

Chart Advisor | Focus on the Price

Wednesday, September 11, 2019

1. Tariff Talk Hits Amazon Hard as Other Retailers Outperform

2. Comparing Apple and Amazon

3. Is Apple Dependent on China or is it the Other Way Around?

Market Moves

The S&P 500 clung to a close just above 3000 today as the market closed its Wednesday session. The measure brings the index close to its historic high-water mark despite continuing fears over trade war policies and the impact of previously announced tariffs. So far these policies have had an uneven impact on U.S. industries and companies. The most notable impact, however, has been the way this news has hit shares of Amazon (AMZN).

Compared with other retailers such as Walmart (WMT), Target (TGT), Dollar General (DG) or even Lowe's (LOW) home improvement chain stores, Amazon has struggled in the current environment. Clearly analysts and investors expect that Amazon's natural distribution of so many Chinese-made goods will be hard hit by the tariffs as currently proposed. But if Amazon will be so hard hit, why aren't shares of Apple (AAPL) experiencing selling pressure?

Comparing Apple and Amazon

Apple announced new iPhones and iPad products with jazzy new features and compelling price points, all timed to hit a wave of prospective customers ready for upgrades. Markets pumped up shares of AAPL seemingly without fear of the tariffs set to go into effect in December, even though many of Apple's products are, and will likely continue to be, made in China.

It may be that analysts understand Apple's position in the Chinese economy. For better or worse, Apple has become to the Chinese economy, what the big three auto manufacturers are to the U.S. economy: a plentiful source of jobs for skilled, and semi-skilled laborers. Nearly 2 million people are employed in China in the manufacture of Apple's products alone. By comparison nearly 3 million people are employed in the U.S. automotive manufacturing industry—but that includes all manufacturers, not just one.

Some sources have astutely identified that both Apple's management, China's government and the White House all understand that China needs Apple even more than Apple needs China. With that in mind, analysts seem willing to price in the fact that all three of these parties have the incentive to prevent barriers to Apple's success, where the same is not true for Amazon.

Read more:

How the Trade War Is Impacting Amazon

5 Takeaways On Apple's 2019 iPhone and Product Debuts

Why Goldman Sees Bull Stampede Through 2020 Despite Recession Fears

Is Apple Dependent on China or is it the Other Way Around?

Amazon's vast network of retailers, suppliers, distributors and technology workers is in no way exclusive to China, and has no particular bearing on China's economy. Considering its competition with the likes of Alibaba (BABA) and Tencent (TCEHY), it is more likely a drain on China's economy. But much of what is purchased on Amazon is made in China and is consequently subject to the dictates of the new tariffs being imposed on Chinese goods. Thus analysts fear that Amazon will likely feel the pinch.

The difference between the impact on Amazon shares and Apple Shares can be seen even more profoundly when the shares are priced in Chinese currency. Consider the following chart which factors in the cost of AAPL and AMZN if they were priced in Chinese Yuan, rather than U.S. Dollars. The stark difference in price trend begins in mid July just as the tariff talk heats up in news headlines. Time will tell if these trends represent an over-reaction or the wisdom of the crowds correctly predicting a blatant disparity between two companies' business positions.

The Bottom Line

Markets moved higher today as investors brought the S&P 500 close to historic highs. Apple's announcements led to a bump in share prices despite the potential impact of tariffs on Apple's business environment. This may be because Apple's embedded position in China's economy is much more favorable for insuring its success. Amazon, by comparison, does not seem to be as favorably positioned.

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