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Romney Win Would Spark Trade War, Tank Apple, GM And Ford

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A Romney win would hurt Apple and General Motors very badly.  Both of these companies are highly dependent on China for their growth.  Romney has repeatedly stated that he will declare China a currency manipulator on his first day in office.  Such a declaration would likely lead to a trade war.

Chinese consumers are nationalistic.  Japanese car makers are finding out the hard way because of a conflict between China and Japan over an uninhabited island.  Toyota  Motor's sales in China fell 49% in September and 44% in October.   General Motors benefited at the expense of Japanese manufacturers.  Buick sales in China increased 7.7% to 60,510 units in October, Chevrolet increased sales by 8.3% to 54,660, and Cadillac sales increased by 20% to 2,491 units.

Traditionally Ford has been a laggard in China, but in October it sold 33,614 units of its Focus in China. If Romney wins and carries through with his threat, European car makers will benefit at the expense of General Motors and Ford.

Apple will find itself in a much worse position than General Motors.  Apple will be hit with a double whammy, falling sales and falling margins.

A big part of the bull case on Apple is growth in China.  For the year Apple has garnered sales of $23.8 billion from China compared to $13.3 billion from China in 2011.  During the last quarter iPad sales grew by 45% in China and iPhone sales were up 38%.

Chinese being nationalists will shun Apple products in favor of Samsung in the event of a trade war. Most of Apple’s manufacturing is done in China.  If the Chinese currency strengthens against the U.S. dollar, Apple’s cost will go up and its wanted high gross margins will fall.

In my analysis, a trade war would result in Apple stock falling under $400.

About Me: I am an engineer and nuclear physicist by background. I founded two Inc. 500 companies, and have been involved in over 50 entrepreneurial ventures. I am the chief investment officer at The Arora Report, which publishes four newsletters to help investors profit from change. Write me: Nigam@TheAroraReport.com.  Follow me here and get email notification when I publish a new article. Full disclosure: Subscribers to The Arora Report are long Apple from $131 and have taken partial profits at $360, $525, $629, $568 and $610.