Apple’s sales warning is a symptom of what’s ailing the US economy

  • David Brown says amid a shift in global economic power from west to east, the US economy is buoyed by policies that compound its budget and trade deficits. Without a radical overhaul, a downturn in the economic cycle will have a devastating impact
PUBLISHED : Tuesday, 08 January, 2019, 1:02am
UPDATED : Tuesday, 08 January, 2019, 1:29am

Last week’s sales warning from Apple is a timely metaphor for what’s going wrong with the global economy right now. It might provide some insight into the world’s two biggest superpowers going head to head, bruising global growth in the process, but the US-China trade spat is only part of the story.

Apple’s fall from grace is a deeper symptom of changing times as the mantle of global economic power passes from old to new.

China is on the way up and, unless US policymakers wake up to this new reality, it could soon be game over for corporate America. President Donald Trump’s vision of “America first” will end up a disastrous folly.

Without a doubt, the world is changing and Apple is definitely feeling the pinch. Apple is one of the brightest jewels in America’s corporate crown but is fast losing its allure.

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It is a symptom of the US pricing itself out of world markets as the strong dollar and benign neglect take their toll.

It is a reflection, too, of US corporate arrogance losing touch with consumers. Apple might manufacture world-beating products, but not at any price.

China’s growth rate may be slowing, but the nation is finding its feet making home-generated products that its consumers want. In a highly competitive market; forget Apple, China’s Huawei is the way to go.

China is not only consolidating its dominance of domestic and overseas markets, but new frontiers are opening up as the nation makes its great leap forward into space.

The US has always prided itself on being top-notch in the space race, but China could soon be challenging America’s pole position after last week’s successful moon landing.

Right now, China is riding the crest of a technological revolution in robotics, artificial intelligence and aerospace, a hi-tech boom which should extend valuable benefits to the nation’s factory floor. China is steadily building a better future, which is already reaping huge rewards.

On the surface, last week’s 312,000 surge in December’s US job numbers looked fantastic for the American economy, providing further vindication of Trump’s 2017 fiscal stimulus boost.

But the main issue for markets now is the sustainability of US growth. The trade war, the US government shutdown and Federal Reserve tightening all pose potential potholes for recovery. But there are also deep-rooted fatal flaws in the US recovery which pose much greater dangers for the outlook ahead.

The problem with Trump ramping up growth is that he has succeeded in bloating the twin black holes of the budget and trade deficits at the same time. Where US firms have failed to mop up America’s excess domestic demand, China has simply swept in to fill the gap with Chinese goods and services.

This might have let the Fed off the hook of increased US inflation risks, but it has left the US trade deficit with China growing exponentially. The only thing that could stop this trend dead in its tracks is another crash along the lines of the 2008 crisis, but it would only offer a temporary solution.

It is very hard to see where it will all end without a transformation of the US economy. The epicentre of the global economic power is gravitating away from the West, eastward towards Asia and especially China.

China’s economic cycle is on the up escalator while America’s position is in long-term relative decline. Increasingly, China and Asia are looking more like the promising future, while the dominance of the US and Europe is under threat.

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Trump’s attempt to stop the rot with a trade war looks doomed to failure, unlikely to reverse a trend that has been well established since the early 1980s. America needs the impetus of a radical overhaul and a major supply-side revolution, an impossible task for an economy based on the capitalist market model, but an easier one for China’s mixed-market formula.

Apple is experiencing a simple fact of life – economic success can’t be guaranteed forever. The US has had its day and China is slowly but surely asserting its ascendancy. But it won’t happen without a struggle.

David Brown is chief executive of New View Economics