Trump’s latest round of proposed tariffs will negatively impact Apple’s revenues but according to some numbers crunched by an Apple analyst, investors shouldn’t worry about the company’s profits being hit too hard.
Apple revealed last week that some of the proposed tariffs would hurt the profitability of Apple Watch, AirPods, HomePod and Apple Pencil. Price increases would be passed on to consumers, however, it probably won’t be more than a 20% jump.
Loup Ventures analyst Gene Munster predicts the tariffs would only cause Apple’s revenue to drop by 5% in 2019 because the amount of money the affected products make is such a small slice of the company’s money-making machine.
“If passed, we believe these tariffs could lower the profitability of Apple Watch and AirPods by 10-20%, resulting in just under a 1% negative impact on Apple’s profits in FY19,” writes Munster. “We believe, beyond 2 years, these tariffs will go away.”
Apple vs Trump
Apple CEO Tim Cook told investors during the company’s last earnings call that he wasn’t that worried about the impact on tariffs. Trump reportedly promised Cook that Apple’s products wouldn’t be affected. However, Apple sent a letter to the U.S. Trade Representative last week that stated many of its products would be hit in the crossfire of Trump’s trade war with China.
Trump admitted on Twitter that the price of Apple products will increase because of his tariffs on China. He then encouraged Apple to make more products in the U.S. instead. Of course, by the time Apple could build plants to accommodate the manufacturing, it would already be way late.
Apple prices may increase because of the massive Tariffs we may be imposing on China – but there is an easy solution where there would be ZERO tax, and indeed a tax incentive. Make your products in the United States instead of China. Start building new plants now. Exciting! #MAGA
— Donald J. Trump (@realDonaldTrump) September 8, 2018
Manufacturing iPhones in the U.S. would increase prices too. A recent study by Bank of America found that iPhone prices would rise 20% if they were manufactured 100% in the U.S.
Apple might increase U.S. production in the next 5 – 10 years, but it will still remain a small part of its manufacturing footprint. Loop Ventures estimates that only about 5% of Apple’s manufacturing takes place in the U.S. today.