Pulp friction: the trade war bites Apple

The Economist.

Hello and welcome to The Intelligence from The Economist. I'm Rosie Bloor.

And I'm Jason Palmer. Every weekday we provide a fresh perspective on the events shaping your world.

We all know that British society is riven with class divides. Or perhaps not. According to a new study, it may be more integrated than you think, particularly if you compare it to America.

And there used to be a big part of the online world that was blissfully free of politics. Food and fashion and travel influencers just kept their alignments to themselves. That's changing as a generation of conservative influencers comes out and is proud.

First up though, the global trade war is on. At midnight, America's sweeping tariffs came into force. Speaking at the National Republican Congressional Committee dinner, Donald Trump said that some countries have tried to negotiate.

I'm telling you, these countries are calling us up, kissing my ass. They They are dying to make a deal. Please, please, sir, make a deal. I'll do anything.

But others have retaliated, and none more fiercely than China, which has vowed to fight to the end. In an escalating conflict, Chinese goods entering the US now carry a levy of 104%. In Trump's first term, he granted some companies an exemption from American tariffs. This time, there is no such reprieve.

Your companies are peanuts. I don't care how big they are.

And among the firms caught in the crossfire is Apple, one of America's most popular and profitable companies.

In a nutshell, Apple finds itself more exposed than any big American company to Donald Trump's trade war.

Henry Trix is our US technology editor.

In the days after the tariffs were announced on April 2nd, and then China threatened to retaliate to those tariffs, Apple's market value fell by more than $600 billion. And that fall was because tariffs mean higher costs for Apple. And I don't know about you, Rosie, but my friends flocked to the Apple stores last week in the US to get hold of an iPhone or a Mac or whatever because they feared that tariffs were going to make those goods more expensive. And how Apple deals with the fallout of all this is still unclear.

Your friends are clearly much more forward-thinking than mine are, Henry. Apple famously makes a lot of products in China, so presumably that's why it's now so vulnerable.

Yes, that's right. I mean, most big tech firms that we think about are in the software and the services business. Apple takes a bigger hit than its rivals because it relies far more on selling hardware, and this is a big problem because It still makes about 9 out of 10 iPhones in China, and about a third of the iPhones that it makes in China are sold in America. That's about 70 million phones. It's also threatened by China's retaliation of 34% on all American goods, and potentially by restrictions on the export of rare earths, which also come predominantly from China. But this is a trade war. It's looking increasingly tit for tat. Apple had foreseen this. Tariffs were a problem in the previous Trump administration, and that carried on through the Biden era as well. So it had started to try to reduce its dependence on China, shifting production to India for the iPhone and to Vietnam for things like AirPods and Apple Watches. And that all seemed like a fairly sensible diversification strategy. And what's really come out of the blue for Apple is that those countries, India, Vietnam, and other countries in Southeast Asia, have also been hit by tariffs. So they're not the havens that Apple had thought they would be.

So Henry, what does that mean? How much is it gonna cost to buy an iPhone or a MacBook?

So you need to think about it in terms of the production cost of the phone rather than the retail value, because the tariffs are applied to the value of the phone as it comes out of China rather than the price of the phone in the stores. It could pass those costs on to consumers by raising prices, which is why my friends have gone to the Apple Store. But the trouble is that iPhone sales have stagnated recently. They're considered to be costly enough without more and more gizmos, especially AI, which hasn't worked particularly well for Apple so far. So raising prices further may turn off customers. The other alternative is that Apple could squeeze its investors and its suppliers. From an investor point of view, it has high profit margins. That's why it's become the most valuable company in the world. So it could lean on its loyal suppliers to absorb part of the burden. As yet, we don't know how it's going to resolve this And could it do what Trump wants and move production to America? Well, in advance of these tariffs, Tim Cook, Apple's CEO, tried to get a foot in the door early. He announced that Apple was going to do a $500 billion, 4-year investment in America, and that was considered a way to assuage Donald Trump and allow for some of the exemptions that Apple managed to get from Mr. Trump in the first administration during the previous bout of Trump tariffs. That doesn't seem to have worked. You hear administration officials like Scott Bessant, the Treasury Secretary, saying things like, yes, well, Apple has already made this $500 billion investment. Why doesn't it move more of its production to America? The trouble is, is that that's very difficult. America is a place where labor costs are so much higher than they are in China and especially in India, where Apple had been diversifying to. It's not clear that there are even enough engineers in America to be able to make the sort of iPhones and other stuff that Apple makes. If you look at the semiconductor industry, which Apple relies on, TSMC, the Taiwanese company, has move production to the US, but that's been a long, slow process, heavily subsidized as well. And there's no sense at this point that the Trump administration is offering subsidies to Apple or its suppliers to come to America. So it would be extremely difficult, and by some estimates, it would massively push up the value of an iPhone. One of Apple's most bullish analysts reckons that an iPhone made in America would cost $3,500.

Sounds like your friends had the right idea. Henry, you've already mentioned the high profits of Apple, so won't it just have to eat into its profit margin and absorb some of the costs itself?

There's various things it can do. Its big prayer surely will be that Mr. Trump grants Apple a special exemption, a carve-out, as he did the last time. Tim Cook is considered to be a very strategic, quiet diplomat of a CEO. And no doubt he's using all of his powers to try and win Apple some sort of deal. Also, there are reports that it is accelerating its move to India out of China. But again, that's going to take a long time. It's in so deep in China that it's very hard to get out quickly. So many of its suppliers are there, etc. So yeah, it's hard. It's particularly hard because raising prices is difficult when your main flagship product, the iPhone, is looking stale. And let's face it, Tim Cook's almost 14-year tenure could start looking stale too, unless he finds some sort of Houdini act here.

Henry, thank you so much. Fascinating stuff.

Great talking to you, Rosie.

And for more analysis on the turmoil in the markets as Trump's tariffs take effect, listen to Money Talks, our business and finance podcast, out on Thursday. Are many of your friends a lot richer than richer than you or poorer? British society is known to be really obsessed with class. It's been the lifeblood of creative works for centuries, like the well-known class sketch from The Frost Report in 1966 featuring John Cleese, Ronnie Barker, and Ronnie Corbett.

I look down on him because I am upper class.

I look up to him because he is upper class. But I look down on him because he is lower class.

But a new study suggests that the UK is perhaps not as divided as we thought. According to research by Meta, a higher proportion of people make friends across the socioeconomic divide in Britain than they do in America.

Meta's new dataset is the first of its kind outside America.

Owen Winter is one of our data journalists.

They use Facebook friendships and they estimate whether the users are low economic status or high economic, and then they count the number of friendships between them. And there's some question about what that means, you know, what is a Facebook friendship? But comparing between Britain and the US has some interesting findings, and Britain comes out looking quite good.

And what does the data show about Britain?

Meta found that almost 50% of the friends of low-income users in Britain were from the high-income group, whereas the number in the US is around 39%. So that is quite a substantial difference, which could be good news for British democracy. There's theories from political science that when you have higher connectedness between people, this idea of social capital, it engenders a support for liberal democracy, which is much harder to do when you've got big division between rich and poor. But also it's interesting because it's very geographically varied. So different parts of Britain have very different levels of connectedness between rich and poor.

And which bits have the greater connectedness?

The highest connectedness they found was in the southeast of England around London, and the lowest was in the north of England, particularly in post-industrial areas. And some of that is demographics. Most people's friendships are local to them. So there's an effect where if you live in a place with few high-income users, just necessarily you've got fewer high-income friends. But also beyond demographics, we found that there's real pockets where connectedness is much lower. And it's difficult to say why that is, but it seems to be correlated with the patterns of historic industries. So in the north of England and Scotland and South Wales, where there was mining historically or shipbuilding or steelworks, they seem to have much lower economic connectedness. Industry seems to cast this long shadow over the social structure of these places. And if Meta's findings about social mobility are to be believed, then it's having a dampening effect on their economic potential going forward.

What does being Facebook friends with someone, friends with them on a social media platform, actually tell us?

Yeah, so this is one of the questions I had about the data. And Facebook has a great sample size of friendships, 6 billion friendships, which is not to be sniffed at, and also good coverage of the population of Britain. But Facebook friendships, it's hard to say what they really mean. It probably varies over time. I think when Facebook started out, you were probably more likely to be friends with the people you're Facebook friends with. But now, I mean, I don't know about you, but for me, my Facebook friendships, they're like people I knew in school who I would never speak to today. My neighborhood Facebook group, they're my neighbors, not necessarily my friends. I don't know if Facebook friendships now are your closest friends.

But it still, as you say, is a huge dataset. So what does this really show when applied to the offline world?

Because we had these questions about what does it really mean to be Facebook friends, alongside Meta's research that they've published, we also wanted to put it up against some other data that we had. So I used the British Election Study, which is one we use a lot in the UK. It's a large sample survey of British voters and it's quite high quality. And using this measure of economic connectedness, I couldn't find the same effect that Meta did on incomes or on wellbeing. But we did find a really striking relationship with some political attitudes. What we found was that in areas where there's more connections between rich and poor, people tend to be a bit less economically populist, a little bit less anti-rich in their outlook, which is maybe unsurprising, but also more liberal on issues like immigration. So if you had to summarise it, you'd maybe say that people in these more connected areas are more open in general. They're more in favour of immigration, they're more pro-democracy, generally more liberal.

You mentioned friendships from school. How far is this simply about having gone to school or university with different people?

We found that education is one of the most significant factors in economic connectedness, particularly going to university. Meta's got this interesting bit in the report they published where they've got a kind of ranking of universities by the most connected. And some universities seem to have a really positive effect on connections between rich and poor. And more and more people from low-income backgrounds are interacting with people from high-income backgrounds at university.

So how can governments use the information about economic connectedness to actually change society?

So that's one of the really difficult things, I think, because the effects are quite small and because this connectedness is so linked to the history of British economy and geography. I don't know how much government policy can change things. Meta identifies particular ways that these connections come up, and it's things like hobby groups or religious groups or the sort of mixing that doesn't happen in your workplace or just amongst your social circle. How can the government encourage people to go to hobby groups? I'm not sure. But given that there's this link to political openness and support for democracy, there's potentially a case for government policy that is structured towards economic connectedness.

Owen, thank you so much. Great to talk to you.

Thank you for having me.

How cute with a mini Jackie bag. Is it not giving Republican slay?

But the other one's giving like Make America Hot Again.

But this one's giving like Republican slay.

But this one, I can't really breathe.

Ricardo De Bono is an influencer based in New York. Online, she chronicles everything from her outfits to the dates that she goes on in the city, the sort of apolitical stuff that any regular influencer might upload.

Holly Berman is a news editor at The Economist.

Typically, influencers don't tread on political territory. Some allege that they've lost brand deals or even followers as a result of talking about who they voted for. But Raquel also chronicles her life as a young Republican.

The reason we all love TikTok is because you can be, you know, unhinged, unapologetic. You can be conservative and like wear a cute outfit. It's not a crime.

And she's not alone. Newly empowered by Donald Trump, lots of Republican influencers are wielding style and substance to set the record straight about their politics.

Wait, what do you mean there by setting the record straight?

Well, for a start, they're defining what it actually means to be a conservative woman.

At the end of the day, the conservative The movement never had the correct presentation. They were always marketing to men.

That was Isabel Redfield. She's in her 20s. She's a co-founder of The Conservator. It's an online magazine that angles itself as an alternative to Vogue.

Conservatives for too long have been playing defense in the media, and now we're really taking the ball, we're running with it, and the world is watching.

And The Conservator's Instagram, which has more than 100,000 followers, includes all sorts of glossy guides, things like how to dress like an it girl this winter, but also more political angles like calls the thinker Dogeboy today. Their editor Caroline Downey says that many of their followers don't actually follow other political accounts.

They are politically curious, they're conservative curious or politically agnostic, but there's something about us that is appealing at an instinctual level, and they enjoy honestly our glamorization of a lifestyle that we think is objectively good, true, and beautiful.

Something like food, which is popular among lifestyle influencers, again, not a political topic under the current Trump administration and during Trump's campaign, started to get more political. So one example is Robert F. Kennedy Jr.'s campaign to make America healthy again has actually affected things like milk. Something like unpasteurized raw milk, a prerogative of Californian hippies, has become something of a Republican cultural So I spoke to a couple of influencers that are promoting raw milk as a political thing, but also a lifestyle choice. One influencer I spoke to called Alex Clark posts about drinking raw milk to her 400,000 followers. Another one posts pictures of her raw milk lattes. It's sort of seen as a signifier of being part of this conservative creator world.

But as conservative creator worlds go, last year on the show we talked about tradwives, typically rural, religious, stay-at-home moms who have very soft-focused lives cooking and cleaning, but ultimately hewing to some very conservative values.

Yeah, I mean, for one, you've got the tradwives that are also promoting and drinking raw milk. When you talk to someone about the world of conservative women online, the world of Republican women online, tradwives tend to be the best-known entryway into this online ecosystem, and it's probably what most people have heard of. But a lot of people also disavow themselves from that, and they say 'Okay, I respect that this is their lifestyle. I have similarities in politics with them, but I don't actually identify with the tradwife lifestyle.' So it's not the full picture of what I'm talking about. If you go back to Raquel, the influencer I mentioned earlier, she told me that she didn't fit into those categories.

So I was trying to sort of put forward a new face and say you could be like a normal girl in New York City who would be a normal influencer in every other sense and just, you know, talks about things that matter to them without fear of being canceled or whatever.

Rekha is Canadian, and she actually told me that she couldn't vote in this election, but she hosts parties in New York encouraging other young Republicans in the city to make America hot again.

You were like, oh, these are people that would be my friends who you wouldn't even know were Republican unless they told you or whispered it to you at the dinner table when you said something controversial. Right. That's the story of my life.

I actually went to one of these events in Manhattan. It was a dating event. The dress code I was given was like, you're meeting your future husband or wife because you might be.

So this one we've done pretty regularly, like probably once a month, and we do it as a dating event, but I don't call it a dating event, but it's kind of like, come meet people who are like-minded. It's like a bar night.

I met and spoke to guests at the party. One girl I met mentioned losing friends after voting for Donald Trump, but said that she'd gained new friends and built a new community at events like this one. One comment that really stood out to me while I was there was a girl who told me it could feel extremely lonely being a Gen Z woman in New York that identifies as a conservative or a Trump voter. And she specifically said that following influencers that share her values help her to feel less alone.

Given the trends that you're talking about, then how does that fit into the sort of wider media landscape and the degree to which everything is or is not becoming politicized, the right is or is not dominating?

There's a sense within these communities that mainstream media is less trustworthy to them, and they prefer to seek out stories about the news or politics from individual creators that in their minds are more nuanced, or as one girl put it, offer a hot take. But it's not just an anecdotal thing. There is data that suggests the trend is going towards this direction of unconventional sources of news. Nearly 4 in 10 American adults under 30 now get their news from news influencers, and the White House is welcoming podcasters and influencers into the briefing room. I think what's so interesting about the conservative women online is that many of these creators aren't actually labeling themselves as news accounts or political accounts, but the content that they make touches politics. We're seeing this shift towards talking about politics and news in increasingly unconventional ways, and with that comes more unconventional people weighing in on the conversation who feel empowered to share their views.

Holly, thanks very much for joining us.

Thank you, Jason.

That's all for this episode of The Intelligence. Let us know what you think of the show. You can get in touch at podcast@economist.com. We'll see you back here tomorrow.