The danger of standing up to China is the impact of the Chinese consumer can hurt American and foreign brands. This is what the likes of Apple, Starbucks and so many others will find out in 2019. China’s boycott of US goods remains a real threat.
A U.S. government shutdown and a trade-war truce are potentially a dangerous combination. The economic data out of China is not good and this means that Apple has had to cut its iPhone production to adjust. American brands that are dependent upon sales in China might be up for a rude awakening in 2019.
China has a history of using challenges to its authority as a reason to commit economic punishments including telling consumers to boycott certain brands from particular countries. Luxury jacket maker Canada Goose seems to have been caught up in a political dispute between China and Canada in late 2018, but how many Chinese consumers can really afford Canada Goose or pricey iPhones?
Retailers are slashing iPhone prices across China as consumers say the phones aren’t worth the cost, as Huawei gains even more relevance to Chinese nationalism and patriotic loyalty. Apple’s marketshare in China appears on a steep decline over the trade war.
The Trump administration’s trade war is sending a bit of a chill across the Chinese economy and yet when the impact reaches America, it might be too late to avert an economic nosedive into the next global recession as the markets are fueled more by sentiment than by data in a volatile last three months heading into 2019.
Apple CEO Tim Cook made a rare cut to the company’s sales forecast and as Apple goes so many foreign and especially American brands could go, down in China. Eventually, the era of Chinese consumers being acutely aware of US brands and actively seeking them out could fade in the 2020s. The longer the trade war goes on for the more likely that is to happen.
THE WEAPONIZATION OF THE CHINESE CONSUMER
Meanwhile, China has begun to hold Canadian citizens in apparent retribution for arresting Huawei’s CFO. The problem is there are new documents that link Huawei to suspected front companies in Iran and Syria. China does not particularity seem to respect the legal proceedings of Canada or the United States and seems prone to peculiar acts of revenge.
For China to use its own consumers against foreign brands then would be the biggest weapon, even if it hurts many Chinese companies who benefit from it. According to a previous survey, 54 per cent of respondents — drawn from 300 Chinese cities said they would “probably” or “definitely” boycott US-branded goods in the event of a trade war. It appears in 2019, we will all bear witness to such an event.
New Chinese nationalism could be a force to be reckoned with. From Apple to Starbucks, to KFC to McDonalds a lot of American brand and fashion brands in particular could stand to suffer. Huawei and Luckin make sufficient alternatives to Apple or Starbucks for the majority of Chinese consumers.
The survey found that the most likely boycotters were aged 25–29, had lower middle incomes and lived out of the major metropolitan areas. Both Apple and Samsung have noticed a slow in sales growth in the last few weeks, and if the trend continues it could boost made in China brands. Huawei is already expected to catch Samsung in global sales of smart phones sometime in the early 2020s.
BOYCOTTS AND DIPLOMATIC THREATS
China uses boycotts to punish foreign brands on a regular basis. You might remember the 2012/13-consumer boycott of Japanese cars in response to disputes over islands in the South China Sea had a very sharp effect, with Japanese brands suffering a 32 per cent sales tumble over a 12-month period. But the impact on American brands could in particular be significant for the global economy.
In particular the role of Huawei in Chinese cyber espionage seems to be a grave concern to the international community. The arrest of Huawei’s CFO in Canada has also led to some weird diplomatic repercussions. The retaliatory arrests in China of foreign nationals is creating a culture of fear around China, right when China needs to learn how to lure and retain talent in fields such as machine learning, AI, corporate management and academia as a whole at the highest levels.
The market is slowly understanding what could be occurring here. Goldman Sachs downgraded the stock of Starbucks, citing “a number of points of caution” in the Chinese market. I’ve been warning of this for a while now since Luckin is the default made-in-China coffee brand that is being groomed and positioned to replace them.
ByteDance could destroy Facebook in Asia in the next few years. Alibaba & Huawei could do very well in the Cloud and via smart speakers as well. For every imaginable service, there is or will be a Chinese brand that does it better save for maybe Google. I consider Didi on par with Uber in 2019 and Netflix will one day be only a shadow of what it is today. It’s arguably only Baidu which can never become Alphabet.
The reality is Chinese technological superiority quickly comes after China attains economic superiority, and this is all less than a decade away now. The Chinese consumer is the epicenter of capitalism in 2019.