Apple and its customers may be biggest losers under new Trump China tariffs

Author: CBS News
Apple CEO Tim Cook speaks at the Apple Worldwide Developers Conference in San Jose, Calif., Monday, June 3, 2019. (AP Photo/Jeff Chiu)
FILE: Apple CEO Tim Cook speaks at the Apple Worldwide Developers Conference in San Jose, Calif., Monday, June 3, 2019. (AP Photo/Jeff Chiu/FILE)

If you planned on replacing your iPhone with the latest version, you might want to do so now. Come September, consumers could be paying around $100 more for the highest-end versions of the device if President Donald Trump fulfills his latest threat to tax China products.

Mr. Trump on Thursday vowed to slap a new 10% tariff on $300 billion in goods imported from China starting Sept. 1 unless he saw progress in stalled trade negotiations slated to resume in September. The latest round targets mostly consumer goods, including the iPhone, unlike billions in U.S. tariffs imposed over the past year mostly on Chinese industrial parts and products.

Countries do not pay tariffs. Companies that import a product pay the tariff on the good, and they often pass the bill to the consumer. Oxford Economics predicted Friday that each American household would pay about $200 in higher prices annually if the U.S. enacts Mr. Trump’s latest tariff come September.

Many technology and trade analysts expect Apple to raise its prices if the levy takes effect. Prices for Apple Xs Max start at $1,099 on Apple’s website, if the device is purchased without a trade-in. A 10% tariff would mean a roughly $110 spike.

“Poster child” for U.S.-China trade tension

Although many U.S. companies are impacted, Apple is Wall Street’s “poster child” for trade tension between the U.S. and China, Wedbush Securities analyst Daniel Ives wrote in a note Thursday after the president tweeted his tariff threat .

The tariff is a “gut punch” for Apple and throws a “mini-wrench” into iPhone demand, Ives wrote, estimating demand could be slashed by as many as 8 million devices.

The blow is coming at a “critical time” for Apple, Ives noted. On Wednesday, Apple reported the iPhone accounted for less than half of its sales, the first time that’s happened in seven years, according to Bloomberg.

Ives isn’t alone in predicting the tariffs will slash demand. Bank of America analyst Wamsi Mohan in a note pegged the drop at an even bigger 10 million devices, or 20% of current unit sales.

Market value sinks

Some investors aren’t waiting around to find out. Apple shares, which exactly a year ago became the first U.S. company to reach $1 trillion in stock market value and briefly touched that mark again on Wednesday, lost roughly $42 billion value in the hours after Mr. Trump’s tariff tweet. That’s slightly more than the entire market value of retail chain Target, another company that will be forced to cope with higher prices for consumer goods if Mr. Trump makes good on his tariff threat.

Apple designs its products in the U.S. but assembles many of them, particularly the iPhone, in China. Recent reports suggested Apple had been studying moving some production out of China to help cushion the cost of potential future tariffs that Mr. Trump now says will be imposed Sept. 1.

But that’s not an easy move to execute. It can take months or even years for a big company to shift its manufacturing from one country to another, especially for companies like Apple with the kind of intricate supply chains needed to support a global business. Moving just 5% to 7% of iPhone production to India, for instance, would take up to 18 months in a “best-case scenario,” Wedbush’s Ives has estimated.

Apple not alone in protest

Apple is among hundreds of companies that testified against earlier proposed China tariffs in June. In a letter to the Office of the United States Trade Representative (USTR), Apple said tariffs on China will hurt its competitiveness, touching almost all of its best-sellers, including iPhones, iPads, MacBooks, watches, AirPods and other products, according to the company.

Apple CEO Tim Cook in recent weeks has also sparred with Mr. Trump over reports the company planned to move some production of the high-end MacBook Pro out of Texas to China near Shanghai.

In a call to discuss earnings Wednesday, Cook said Apple wants to keep that production in the country. He noted there’s a “significant level of content from the United States and a lot from Japan to Korea to China and the European Union” in Apple products, according to a transcript.

“I know there’s been a lot of speculation around the topic of different moves and so forth,” Cook said. “I wouldn’t put a lot of stock into those, if I were you.”

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