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White House economic adviser: Expect weak earnings reports from China trade spat

Apple Inc. may not be the only company to suffer as a result of the trade war with China, the chairman of the White House Council of Economic Advisers said Jan. 3, predicting that a "heck of a lot" of U.S. companies could face weaker earnings in the new year.

"It's not going to be just Apple," Kevin Hassett said in an interview with CNN on Jan. 3. "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 we get a deal with China. And I think that puts a lot of pressure on China to make a deal."

The majority of public U.S. companies are slated to release their fourth-quarter 2018 earnings in January and February.

Apple announced Jan. 2 that it has lowered its fiscal 2019 first-quarter revenue forecast ahead of its earnings release. The California-based tech giant now expects revenue of $84 billion for the quarter ended Dec. 29, 2018, a reduction from its earlier guidance of between $89 billion and $93 billion.

Apple attributed the lower forecast to weaker sales of the iPhone, which is produced in China.

Apple CEO Tim Cook said in a letter to investors that the slowdown in China in the second half of 2018 was due in part to the trade war with China putting pressure on the Chinese economy.

However, Hassett predicted that a successful deal with China will help companies adversely impacted in the short term by the trade war, including Apple, recover in the long term.

The U.S. and China reached a tentative truce on tariffs that began Dec. 1, agreeing to suspend planned tariff increases as the two countries work toward a permanent solution during a 90-day negotiating period.

Despite the news from Apple, President Donald Trump defended his use of tariffs, claiming on Twitter on Jan. 3 that the U.S. Treasury Department has taken in "many billions" of dollars from the tariffs imposed on China and other countries.

"In the meantime we are doing well in various trade negotiations currently going on," Trump tweeted. "At some point this had to be done."

A bevy of companies have repeatedly called on the Trump administration to end its trade spat with China, warning that costly tariffs will upend supply chains, raise consumer and production prices, and cost jobs. Those impacted by the tariffs run the gamut from producers of consumer electronics to furniture producers to agriculture companies and others.

The U.S. imposed three separate batches of tariffs on Chinese goods in 2018: a 25% tariff on $34 billion of Chinese goods that took effect in July; a 25% tariff on $16 billion of Chinese imports that took effect in August; and most recently, a 10% tariff on $200 billion of Chinese goods that took effect in September. China retaliated accordingly, imposing tariffs on its own $110 billion of American exports in 2018.

That final tranche of U.S. tariffs, originally scheduled to rise to a rate of 25% on Jan. 1, remains at the 10% level as the two economic powerhouses continue to talk during the 90-day negotiation period.

A group of American negotiators is slated to start ministerial-level trade talks with their Chinese counterparts the week of Jan. 7, according to Bloomberg.