As the trade war between the U.S. and China has continued to escalate over the past two years, Apple has been continuing its fight to remain out of the dispute, repeatedly petitioning U.S. President Donald Trump and the U.S. Trade Representative to leave its products out of the tariffs that are otherwise being imposed on goods imported to the U.S. from China.
While Apple succeeded in this for a while, last summer it looked like its luck had finally run out, with a new round of 15% tariffs expected to hit not only the iPhone, but also the iPad and Apple’s MacBooks, on Dec. 15. The new tariffs were actually part of a list that was scheduled to come into effect on September 1st, but tariffs on certain products — including the iPhone — were delayed until Dec. 15 in order to allow for a “public comment and hearing process.”
Other Apple products haven’t been so fortunate, with the company’s accessories being hit with a 25% tariff last spring, and other products like the AirPods, Apple Watch, and its desktop iMacs being excluded from the delayed tariffs, and therefore getting hit with the new 15% levy as of Sept. 1. The new Mac Pro is exempt from these tariffs, however, since it’s made in the United States; although some components still come from China, it’s unclear what levies the U.S. has placed on these.
Following a dinner meeting with Apple CEO Tim Cook, U.S. President Donald Trump admitted that Cook made a good case against Apple tariffs — specifically that its chief rival, foreign company Samsung, would have a competitive advantage against Apple since its products are made in South Korea. Despite this, however, Trump showed no indication of doing anything to specifically prevent the new iPhone tariffs from coming into effect as scheduled.
However, according to Bloomberg, Trump has just signed off on a broader trade deal with China that will quash the next round of tariffs that were scheduled to kick in this weekend.
Trump delivered an early Christmas present to Apple.Dan Ives, analyst for Wedbush Securities
As Wedbush Securities analyst Dan Ives pointed out in a note to investors, “Trump delivered an early Christmas present to Apple,” as the next round of tariffs could have “thrown a major wrench into the supply chain and demand for the holiday season.”
Specifically, the tariff would have added about $150 to the price of the iPhone, which could have been a big setback during what is traditionally Apple’s biggest sales quarter. Apple would have undoubtedly absorbed this additional cost — it’s done so with all of its other products so far — but it would have hit the company’s bottom line. This could also be one reason why some analysts have a pretty negative view of Apple’s future stock prices.
Specifically, if Apple had to swallow the cost of an additional 15% tariff on the iPhone, analysts expected that this would cut its earnings per share by about 4% next year. On the other hand, if Apple chose to raise iPhone prices to make up for the cost difference, Ives predicted that demand for the iPhone would shrink by about 6% to 8% next year, which could prevent Apple from reaching the record-breaking sale of 100 million iPhones that it’s rumoured to be anticipating next year.
While the Dec. 15 round of tariffs have now been averted, it’s still not clear when or if the existing levies on other products will be rolled back. According to people familiar with the discussions between the U.S. and China, there have been discussions about possible reductions of existing duties on Chinese products, but it seems like nothing has yet come of these discussions. Apple has been paying duties on the Apple Watch, AirPods, iMacs, and HomePods since Sept. 1, and has been paying an even higher levy on accessories like cables, power adapters, and cases since last spring.