By Peter S. Goodman

New York Times News Service

Apple: Raise prices or suffer margin hit?

For more than a year, Apple Inc. avoided major damage from the U.S. trade war with China, thanks in part to a White House charm offensive by Chief Executive Officer Tim Cook. But the company now faces its first major hit — from both sides of the dispute.

A new round of tariffs proposed by the U.S. on Monday includes mobile phones, meaning the iPhone, Apple’s most-important product that is made almost entirely in China, may be encumbered with a 25% import levy. There are other products on the list that would affect Apple too, such as laptops and tablets.

China retaliated on Monday with plans to increase tariffs on U.S. imports to 25% from 10%. That would apply to components for the iPad and iPhone.

That leaves the company with a difficult choice: Raise prices on already-pricey products and risk missing out on sales, or absorb the extra cost and let profits suffer.

There’s a “very real risk of higher import costs and/or U.S. consumer demand destruction depending on whether Apple decides to pass along some of the tariff cost,” Krish Sankar, an analyst at Cowen Inc., wrote Tuesday in a note to investors.

— Bloomberg

LONDON — In ordinary times, worries about the health of the global economy tend to prompt leaders of the largest countries to join forces in pursuit of safety.

These are not ordinary times.

The biggest threat to global fortunes has become the intensifying conflict between the two largest economies on earth, the United States and China. As their leaders openly contemplate how to inflict pain on each other, the rest of the world now frets about becoming collateral damage in an escalating trade war.

Only a week ago, China and the United States appeared to be moving toward cooling their hostilities, while global economic prospects were improving. Worries about a worldwide slowdown were giving way to burnished hopes for expansion.

Fears about the weakening of China’s economy were easing as President Donald Trump advertised a soon-to-be-signed trade deal. That lifted the outlook for Asian economies dependent on global commerce like Japan, South Korea and Taiwan. Europe, a perpetual source of concern, was flashing signs of renewal. Defying skeptics, the U.S. economy remained on a tear.

But late last week, as Trump sharply increased tariffs on $200 billion worth of Chinese goods, the world found itself grappling with the likelihood that the trade war will be painful and expensive.

The concern mounted on Monday as Beijing retaliated and the Trump administration detailed plans to slap 25% tariffs on virtually all goods that China sends to the United States.

For businesses and consumers alike, it all raised the prospect that they would soon be paying higher prices for goods, a reality that discourages commerce.

“An escalation scenario would be terrible all around,” said Gabriel Sterne, head of global macro research at Oxford Economics in London. “A negative impact on trade flow is going to be bad for global growth for several years. It’s bad news for almost everybody.”

If both sides follow through on their threatened tariffs, China’s annual economic output will be reduced by 0.8% while the United States will see its annual growth reduced by 0.3%, according to Oxford Economics.

Those numbers are small in the grand scheme of things, but the damage could be felt acutely within industries that are especially exposed to the trade war, such as American agriculture and Chinese electronics manufacturers. The weakness was underscored on Wednesday by the latest indications that China’s economy is slowing and by lower-than-expected figures for retail sales and factory orders in the United States.

The harm could be especially severe for countries that are most dependent on trade, including Singapore, Malaysia, Mexico and Japan.

At the center of trouble sits China, the world’s most populous country. Its breakneck development over recent decades has added hundreds of millions of consumers to the global marketplace while supplying a vast assemblage of low-cost goods.

Given that China is the source of roughly one-third of the world’s economic growth, any disruption to its trade amounts to a global event.

Trump has designed his tariffs to wound China as he seeks to pressure its leaders to agree to cease subsidizing state-owned companies, stop demanding intellectual property from U.S. businesses and open its markets to foreign competitors. Until last week, the president was insisting that a trade deal with China was imminent. Then, he abruptly accused China of reneging on its commitments and opted to increase tariffs.

Volumes of freight imported by China surged in April, according to an analysis of data by UBS, the global investment bank. Worldwide, airfreight was up in March compared with a year earlier, according to the International Air Transport Association.

But these trends are fragile. Airfreight has declined nearly 4% since its peak in 2017. Outside China, manufacturing in Asia has been slowing for much of the last two years. A trade war between the United States and China — two countries that collectively account for roughly 40% of world economic output — would almost certainly aggravate the situation.

Exports to China from Japan, Taiwan, South Korea, Thailand and Vietnam have plunged by about 14% over the past year, or about $6.3 billion, according to analysis from Oxford Economics.

Those same countries have lifted their exports to the United States by a similar percentage. But the United States is a less important trading partner, and the increase amounts to less than $2 billion.

In Europe, the trade war presents another unwanted source of concern at a time of tenuous progress.

Concerns that Britain’s unruly departure from the European Union would damage trade across the continent had abated — at least in the immediate term — as London and Brussels agreed to extend their fractious divorce proceedings until the end of October.

Germany, the continent’s largest economy, had been moderating fears of weakness, with data showing an increase in factory orders and exports. Germany’s exports to China were up by more than 5% in March compared with a year earlier.

But much of what Germany sends China amounts to the piece parts of China’s industrial apparatus — car parts, engines, electrical machinery and other gear folded into factory operations. If Chinese factory operations slow in the face of American tariffs, China’s appetite for German goods will probably wane.

In Italy and France, industrial activity has been weakening in recent months.

The trade war has already spooked global stock markets, prompting plunges in share prices in recent days.

If investor fear deepens, money will almost certainly flow into the ultimate safe haven, the U.S. dollar. That would probably be accompanied by money leaving so-called emerging markets, exacerbating crises in Argentina and Turkey, while bringing down the value of currencies more broadly, from Brazil to South Africa to India.

Falling currencies make imported goods more expensive in those countries, forcing poor people to pay more for food, fuel and transportation.

After rising early this year, currencies and stock prices across emerging markets have dipped precipitously in recent weeks.

The key question now is how long trade hostilities will endure.