Apple products may get more expensive thanks to Trump's trade war

Apple Watch, Airpods and IMac computers are among the devices that could be affected by 15 per cent tariffs

An attendee displays an Apple watch series 4 during an Apple Inc. event at the Steve Jobs Theater in Cupertino, California, U.S., on Wednesday, Sept. 12, 2018. Apple Inc. took the wraps off a renewed iPhone strategy on Wednesday, debuting a trio of phones that aim to spread the company's latest technology to a broader audience. Photographer: David Paul Morris/Bloomberg
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The trade war between the US and China will hit Apple this weekend, dragging the largest US technology company into a fracas that threatens to raise prices on popular consumer gadgets and undermine a giant but delicate global supply chain.

President Donald Trump’s 15 per cent China tariffs were entered into the Federal Register on Friday, making the move official. At 12.01am local time on Sunday in Washington, the levies will kick in for hundreds of products entering the US or being withdrawn from warehouses for consumption in the US, according to the order.

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We believe the US does not want to be the first to add tariffs to Apple, given Apple is arguably the leading US company and the face of American business in China.

One veteran analyst was holding out hope for a last-minute reprieve.

“The US adding tariffs to any Apple product without some type of corresponding offset to mitigate the negative effects crosses the Rubicon on many dimensions,” Gene Munster of Loup Ventures, wrote in a note on Friday. “We believe the US does not want to be the first to add tariffs to Apple, given Apple is arguably the leading US company and the face of American business in China. The optics of a US protectionist first approach penalising a US global leading company while China doesn’t penalise Apple would seem to surrender the moral high ground.”

Any reprieve for Apple looked unlikely as Trump showed little sign of backing down and blamed US companies for their inability to deal with a trade policy he said was aimed at reining in “unfair players". Apple didn’t respond to requests for comment.

Here’s a list of Apple products that will be hit by 15 per cent tariffs starting this weekend:

  • Apple Watch and Watch bands
  • AirPods
  • HomePod
  • Some Beats headphones
  • IMac computers
  • Repair parts for iPhones may also be hit
  • Nand flash, a key storage component for iPhones, could also be affected

The iPhone, which contributes more than half of Apple’s revenue, won’t face this 15 per cent tariff until December 15. But the other hardware products made up at least 10 per cent of sales in the company’s 2018 fiscal year, and many of these will have to absorb the 15 per cent import levy that kicks in on Sunday.

It’s unclear if Apple will raise product prices or assume the cost of the tariffs. The company, one of the world’s most profitable, maintains higher margins than most other consumer hardware makers.

A 15 per cent tariff on Apple wearable gadgets sold in the US would likely reduce earnings by 5 cents to 10 cents a share per year, Mr Munster estimated. Analysts, on average, estimate Apple’s adjusted profit will be $11.63 (Dh42.71) a share in the 2019 fiscal year, according to data compiled by Bloomberg.

Apple has been lobbying Trump for more than a year to avoid tariffs. During a recent dinner with the president at his golf club in Bedminster, New Jersey, chief executive Tim Cook voiced concerns that Apple’s main rival Samsung Electronics will get an edge because its products won’t be subject to the levies.

Just days after that dinner, Mr Trump announced that tariffs on $300 billion of goods from China would be 15 per cent, up from 10 per cent. These take effect in two tranches, with the first batch happening on Sunday.

Apple spent decades building one of the largest supply chains in the world. The company designs and sells most of its products in the US, but imports them from China after assembly. That makes it one of the most exposed companies to tariffs.

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