The worst is yet to come
Wall Street had been anxiously awaiting the latest quarterly results from Amazon and Apple to see how badly the companies — of the so-called Magnificent Seven tech giants, perhaps the most vulnerable to President Trump’s trade war — would get hit by tariffs.
The answer: not too badly. But upcoming quarters may be messier, showing that not even hugely powerful corporations are immune to Trump’s assault on global commerce.
The highlights:
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Apple exceeded analyst expectations in the most recent quarter, with $24.78 billion in profit and $95.36 billion in sales.
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Amazon squeaked past Wall Street forecasts, with $18.4 billion in operating income and $155.7 billion in revenue.
Despite steadily climbing worries about tariffs in the just-finished quarter, Tim Cook, Apple’s C.E.O., said the company hadn’t seen any sign of customers pulling forward their purchases of iPhones in case levies forced the company to raise prices. That wasn’t quite the case at Amazon, with Andy Jassy, the company’s C.E.O., saying that there was “heightened buying” of certain products.
The future looks grimmer. Cook warned that despite exemptions from tariffs on Chinese-made iPhones, won after his personal lobbying of Trump, his company may face $900 million in costs in the current quarter because of import duties. That’s assuming no new fees enter the picture. (Fun fact: The word “tariff” came up 27 times during Apple’s earnings call with analysts.)
Jassy acknowledged uncertainty, telling analysts, “Obviously, none of us know exactly where tariffs will settle down or when.” (Tariff word count from the call: 17.)
Other operations are facing pressure. Apple’s services division has often outperformed device sales. But a federal judge recently ordered the company to stop collecting commissions from some app sales, a decision Apple is appealing. And the company could lose some of the $20 billion in annual payments that Google gives it to be the default search engine on the Safari browser if the Justice Department persuades a federal judge to impose stiff antitrust penalties on the search giant.
Meanwhile, Amazon’s cloud computing division, a crucial business for the company, came in slightly below Wall Street expectations and lagged behind Microsoft’s. Some analysts also worry that advertising, an increasingly important source of revenue, could face pressure from tariffs.
The companies are taking steps to soften the blow from tariffs. Cook said that a “majority” of iPhones sold in the U.S. during the current quarter would come from India rather than China. Other products, like iPads, would be made in Vietnam.
And Jassy said Amazon was “pretty maniacally focused” on avoiding big price increases, in part by buying up extra inventory and helping sellers on its marketplace do the same. That said, some merchants have tested how much they can raise prices without being punished by Amazon, The Wall Street Journal reports.
Wall Street remains cautious, with shares in both companies lower in premarket trading. Apple has fared well for now because it hasn’t had to raise prices, Ben Bajarin of the tech research firm Creative Strategies told The Times. But, he added, “The question is: If more tariffs hit, then what happens?”
And Gil Luria of the research firm D.A. Davidson warned that shareholders “may be a little disappointed by margins and margin guidance, which could create a concern about Amazon absorbing tariff costs.”
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HERE’S WHAT’S HAPPENING
A crypto deal puts President Trump’s conflicts in the spotlight. The state-backed Emirati artificial intelligence giant MGX said it would use USD1, a Trump-affiliated stablecoin, to make a $2 billion investment in the crypto exchange Binance. The transaction could generate hundreds of millions of dollars for the Trump family, further raising concerns about the president’s conflicted relationship with crypto. Senator Elizabeth Warren, Democrat of Massachusetts, cited the news to denounce a proposed stablecoin law that she said would “make it easier for the President and his family to line their own pockets.”
Microsoft drops a longtime legal adviser for one that is fighting Trump. Lawyers from Simpson Thacher & Bartlett — which agreed last month to donate $125 million in pro bono services to Trump-favored causes — stepped back from representing the tech giant in a lawsuit related to its takeover of Activision Blizzard. They’re being replaced by lawyers from Jenner & Block, which has sued to block an executive order targeting the firm. It isn’t clear why, but it’s a sign that opposing Trump won’t necessarily cost a law firm business.
Kohl’s fires its C.E.O. for sending business to his romantic partner. The retailer said it had dismissed Ashley Buchanan, who had held the role only since November, “for cause” for directing the company to do business with a vendor with whom he had “undisclosed conflicts of interest.” The Wall Street Journal reports that Buchanan had Kohl’s sign a multimillion-dollar consulting agreement with Boston Consulting Group, where his partner, Chandra Holt, is an adviser.
What to watch in Friday’s jobs report
The labor market has been on autopilot, with employers on a hiring spree that has chugged on for roughly five years. That streak is expected to continue with Friday’s jobs report — but many economists predict complications as companies brace for more fallout from President Trump’s trade war.
A lighter-than-expected readout could bolster calls by Wall Street for the Fed to lower interest rates soon, especially after Wednesday’s tepid inflation report and lousy G.D.P. report. While economists and traders say they believe a rate cut in May is unlikely, the central bank will come under more pressure if Friday’s numbers are especially soft.
What to expect: Hiring will probably have risen by about 135,000 in April, down sharply from the 228,000 added in March, economists polled by FactSet estimate; that would keep the unemployment rate steady at 4.2 percent. Wage growth is expected to remain little changed from the previous report, again growing at 0.3 percent clip on a three-month rolling average.
(It may take several more months before federal job losses driven by Elon Musk’s so-called Department of Government Efficiency start showing up in the reports.)
Recent economic data has been worrisome. ADP’s private payroll report on Wednesday showed a hiring slowdown. There tend to be discrepancies between reports by ADP and the Bureau of Labor Statistics, but weakness elsewhere — evident from Thursday’s ISM manufacturing data — suggests a rough patch ahead.
“Firms are pivoting towards layoffs and away from hiring freezes and attrition to control costs amid weakening demand and an uncertain economic environment,” Matthew Martin, senior U.S. economist at Oxford Economics, wrote in a research note on Thursday, predicting trouble going forward for the manufacturing sector.
The real doozy could come next month. That’s when economists expect to see the fallout from Trump’s trade war and his crackdown on immigration eat into hiring. “The longer large tariffs last, the greater the chance for tariff-related layoffs,” Veronica Clark, an economist at Citigroup, wrote in an investor note this week.
A $10 T-shirt might now cost $24.50
American shoppers looking to buy an inexpensive T-shirt or pair of shoes on Shein are in for a surprise at checkout. On Friday, Trump ended a shipping rule that has underpinned the explosion of e-commerce and its disruption of traditional retail business models. The tax exemption has let packages from China valued at under $800 come into the U.S. tariff-free.
Shein and Temu, the popular Chinese shopping apps, relied on the so-called de minimis loophole. They’re already raising their prices because of the change.
Calls to reform de minimis predate President Trump. But as Danielle Kaye writes for DealBook, his rollout is sowing chaos for e-commerce sellers of all sizes, not just the fast-fashion giants.
In Trump’s view, de minimis is a “scam.” He said this week that it hurts small businesses. The president has also said that the exemption needed to end as a way to stop the flow of fentanyl. Trump tried to start taxing low-value Chinese goods in February, but he walked back the change after it caused a pileup of packages at the border.
He’s trying again and, this time, it might stick.
Neither Democrats nor Republicans like the exemption. Last fall, the Biden administration cited similar concerns when introducing a plan to reduce these lower-cost shipments. And traditional retailers that send big bulk shipments to their U.S. warehouses have also long bemoaned the rule, saying it puts them at a disadvantage. Companies delivered $46 billion-worth of packages under the provision, according to a Nomura estimate.
Fast-fashion giants are in the spotlight. Shein and Temu have become shopping behemoths thanks in part to the exemption. Their customers have gotten used to the discounts and speed — $15 clothes, shoes, toys, household items, all at their doorstep within days. Together, Shein and Temu generate well over $100 billion in gross sales.
Amazon drew Trump’s anger recently when it reportedly considered following the lead of these e-commerce sites by itemizing the tariff costs in the prices. Temu started detailing the cost that tariffs would add to their purchases, while Shein is warning that “tariffs are included in the price you pay.”
But ending de minimis is not necessarily existential for these companies. It might just mean changes to their supply chains. They’ve already started to diversify by working with more U.S.-based sellers, and Shein has considered shifting some production outside of China, according to a report from The Financial Times.
It’s not just the big players. Lots of people who sell on sites like Etsy, eBay and Shopify rely heavily on the de minimis tax exemption.
Kelly Kendall, who runs a craft supplies business in the Chicago area, imports most of her products directly from China — tax-free, through de minimis. She uses those materials to make kits that she sells on Etsy. Now, her business model is up in the air. “I don’t think people understand the larger impact for really small businesses,” Kendall said.
This doesn’t affect just U.S. businesses. The new taxes apply for all goods made in China, even if they’re shipped to the U.S. indirectly. Some Canadian vendors who sell Chinese-made goods said they’re looking to build out their Canadian customer base in response to the de minimis change.
THE SPEED READ
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