The Trump administration revealed yesterday a series of steep import tariffs targeting numerous nations, which includes all major manufacturing locations for Apple. Analysts project that this could compel Apple to raise US prices by 40% or suffer a 32% hit to its profits.
The announcement triggered significant declines in the global stock markets, with AAPL stock dropping over 7% in pre-market trading amidst concerns about the repercussions …
Trump’s Tariffs
Tariffs are taxes imposed on imports that consumers and companies in the US have to pay when goods arrive at ports. Trump has set a baseline tariff of 10% on all imports worldwide, but much higher rates for several countries. These tariffs target almost all of Apple’s production countries:
- China: 34%
- India: 26%
- Thailand: 36%
- Vietnam: 46%
These rates would increase the cost for Apple by approximately one-third for most products sold in the US, forcing the company into a difficult choice between a substantial profit margin reduction or passing costs onto consumers. Whichever path is taken, the consequences for the company would be severe.
If Apple were to bear these additional costs, estimates suggest a potential 32% decrease in both its profits and earnings per share (EPS).
Conversely, if the burden is shifted onto consumers, it could lead to a significant slump in sales. For instance, transferring the full tariff on a base-model iPhone 16 Pro made in China could elevate the price for US consumers from $999 to $1,338. This trend of surging prices would be similar across all of Apple’s product range.
Three Reasons Apple Might Be Exempt
However, there are three key factors suggesting that neither Apple nor its customers will ultimately face the burden of these tariffs.
Firstly, there is speculation that Trump is using these exaggerated figures as a negotiation strategy, aiming to secure concessions from the most affected nations in exchange for not enforcing them. The tight timeline makes this a risky strategy, and the global responses make it a challenging position to maintain, but it does offer a potential logic behind the move.
Secondly, historical context. Trump rolled out a less severe iteration of this plan during his first term, implementing a 10% tariff on a wide array of Chinese imports. If Apple had passed the increased costs onto consumers at that time, it was projected to reduce iPhone demand by 6-8 million units a year. Alternatively, if it absorbed the increases, earnings would have dropped by around 4%. Nonetheless, Apple managed to secure exemptions for nearly all its products.
Lastly, and perhaps most compelling, is the staggering impact that allowing the proposed tariffs to actualize would have. With a single action, Trump could financially cripple one of America’s most successful companies and/or cause significant financial strain on its US customer base.
While it’s evident that Trump may not fully grasp the implications of tariffs, he does have advisors who understand the complexities. Additionally, Tim Cook and other CEOs from American firms will likely be working diligently to inform him. Between these efforts, a solution is likely to emerge.
The most probable outcome is that a resolution will be crafted to protect Apple and other major US firms whose products are manufactured abroad, sparing them from the full force of the tariffs.
Image Credit: Apple
