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What's At Stake As The U.S. Tries To Settle Its Trade Dispute With China

AUDIE CORNISH, HOST:

In the meantime, China and the U.S. are still waging an economic battle, and it's taking a toll on both sides of the Pacific. The U.S. stock market sank today after Apple warned that slower iPhone sales in China are cutting into the company's profits. Apple shares tumbled nearly 10 percent. NPR's Scott Horsley reports the downturn is one more challenge to President Trump's claim that trade wars are easy to win.

SCOTT HORSLEY, BYLINE: The Trump administration has often pointed to the economic slowdown in China as evidence that its own tough trade policies are working, but Apple investors may find that hard to swallow. The company's stock dropped sharply after Apple warned iPhone sales in its most recent quarter fell billions of dollars short of expectations. CEO Tim Cook blames most of that shortfall on slowing sales in China.

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TIM COOK: It's clear that the economy began to slow there for the second half. And what I believe to be the case is the trade tensions between the United States and China put additional pressure on their economy.

HORSLEY: Cook told CNBC China's economic downturn depressed demand for smartphones in general, but he also acknowledged some Chinese consumers may have switched to homegrown suppliers like Huawei, shunning the American iPhone because of the trade war with the United States.

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COOK: 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 tension that's further pressured it.

HORSLEY: White House economist Kevin Hassett warned on CNN other American companies doing business in China are likely to suffer a similar fate.

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KEVIN HASSETT: It's not going to be just Apple. I think that there are a heck of a lot of U.S. companies that have a lot of sales in China that are basically going to be watching their earnings be downgraded next year until, you know, we get a deal with China. And I think that that puts a lot of pressure on China.

HORSLEY: It puts a lot of pressure on this country as well. Concerns about China contributed to Wall Street's worst year in a decade in 2018. David Dollar of the Brookings Institution says when China, the world's second-largest economy, hits the brakes, it leaves skidmarks all over the planet.

DAVID DOLLAR: They're the biggest trading partner for more than a hundred different countries. And they're an enormous importer.

HORSLEY: Dollar says the United States is actually less vulnerable to China's slowdown than many other countries that are more export dependent, but no big economy is immune.

DOLLAR: There is some real risk in the world that you get a big slowdown in China, and that's not going to be good for the U.S. or for anybody else.

HORSLEY: But the Trump administration tends to downplay that interdependence as if what's bad for China is automatically good for the United States.

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LARRY KUDLOW: We're in very good shape, China - not so good.

HORSLEY: White House adviser Larry Kudlow argued, before President Trump met with his Chinese counterpart last month, dueling tariffs between the two countries are much tougher on China than the U.S.

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KUDLOW: I'm not suggesting there aren't winners and losers in that game. It's a complicated game. But on the other hand, I think we are in far better shape to weather this than the Chinese are.

HORSLEY: Trump echoed that view this morning, tweeting about the billions of dollars in tariffs the U.S. government is collecting during the trade war. Never mind that those tariffs are largely paid by American businesses and consumers. Trump has threatened to increase and expand the tariffs if he can't reach a deal with China in the next couple of months. Syracuse economist Mary Lovely says that would come at a price in this country.

MARY LOVELY: We will see the direct hit to consumers, and that will be pretty hard to hide from folks in the U.S.

HORSLEY: Much like the hit that investors in Apple and many other companies felt today. Scott Horsley, NPR News, Washington. Transcript provided by NPR, Copyright NPR.

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