Chinese consumers may be staging an informal boycott of some American products and that could be a factor behind Apple's revenue shortfall, according to Bank of America Merrill Lynch economists. Others on Wall Street have made the same claim.
Apple last week stunned investors when it revealed its revenues would miss its forecast, in large part due to a drop-off in sales of its iPhone in China. Apple CEO Tim Cook laid the blame in big part on trade tensions, though Trump administration officials were at odds over whether the trade war was hitting U.S. companies doing business in China or whether Apple was its own case.
BofAML economists have said the sales shortfall could also be due to other factors, including competition, price and the drop in China's currency.
Ethan Harris, Bank of America Merrill Lynch chief global economist, said data on trade between China and the U.S. has been very clear and points to the potential of a consumer boycott. "I think what you see in the data is a broad pulling away from U.S. goods. If you look at the charts on imports, it's not just the products where there are tariffs by China. It's a general weakness in imports," he told CNBC.
China rebuked the U.S. for tariffs last fall by reducing orders of soybeans. On Tuesday, as trade talks were underway, there was a seeming thaw in relations. China approved five genetically modified crops for import, the first in 17 months. Some of the products have been waiting for approval for six years, according to wire reports.
While Chinese purchases of U.S. soybeans dropped, there was a clear pickup in Chinese imports from Brazil. "The soybean story is a big part of it. That was something we all expected. It's the broad-based drop that looks unusual and surprising, particularly since it isn't replicated with other countries," said Harris.
Analysts have said the tensions between China and the U.S. over the U.S. pursuit of alleged cyber-espionage by Chinese telecom companies may also be a factor. The CFO of Huawei has been arrested in Canada and may be extradited to the U.S.
U.S. authorities allege CFO Meng Wanzhou deceived international banks into clearing transactions with Iran by claiming the two companies were independent of Huawei, when in fact Huawei controlled them.
"There may be some consumer backlash to American companies, a form of nationalism," said Bernstein analyst Toni Sacconaghi on CNBC last week. But he said there are many things at work with iPhone sales, including a weaker upgrade cycle and the macro picture of a weaker China.
The BofAML economists said there may be a general redirection away from U.S. products.
"This is partially official policy — e.g. the shift in soybean imports from the US to Brazil — but an informal boycott of US products also seems to be taking place," wrote the BofAML economists.
Asked about boycotts, Apple's Cook told CNBC last week that there have been reports of people talking about not buying Apple products because the company is American.
"My personal sense is that this is small. Keep in mind that China's not monolithic, just like America's not monolithic. You have people with different views and ideas," said Cook. "Do I think anybody elected not to buy because of that? I'm sure some people did, but my sense is the much larger issue is the slowing of the economy and then this — the trade tensions that's further pressured it."
Cook said the drop-off in iPhone sales came in November.
Meanwhile, U.S. Census Bureau data on trade was available only through October and showed that for the three months ended Oct. 31 U.S. electronic equipment and component sales to China rose 3 percent and computer sales rose by 4 percent. But for the same period, there were huge drops in agriculture and oil and gas products, declining 92 percent and 88 percent respectively.
Harris said he has no specific data on sectors that could be impacted by a boycott, but said telecom equipment makes sense as a target. "I think the reason you may expect the handset market to be particularly affected is because there's a very visible battle going on between the Chinese and U.S. governments over exactly these companies," Harris said. "There's U.S. concerns about technology thefts and concerns about trade with nations on the watch list."
The Apple comments highlighted that the trade war is hitting both the U.S. and China, though China's economic woes are much deeper. But the BofAML economists said they see a shift coming later in the year, where China's economy will recover due to stimulus but the U.S. economy could be faltering.
"You need to get some signs of pain on both sides, then they're both motivated to reach a compromise," said Harris. "I think we're now at that point. I think these negotiations are much more serious than the earlier."