New President Donald Trump is expected to raise import tariffs. Fortunately, Apple is prepared to avoid the worst.
During President Donald Trump 's first term in office , the US-China trade "war" resulted in increased tariffs. However, thanks to Tim Cook's frequent negotiations with Mr. Trump, Apple avoided major damage from import fees.
For a second Trump term, the same situation could happen again with high tariffs on imports from China. However, this time, Apple is in a much better position.
Apple CEO Tim Cook (left) and President Donald Trump (right).
In an October report from the Consumer Technology Association (CTA), Mr Trump’s proposals would impose “deep and broad tariffs” on imports from other countries, which were broken down into three groups, including across-the-board tariffs of 10% and 20%, and a 60% tariff on China.
The proposal aims to encourage manufacturing to move to the United States rather than overseas, fend off foreign competition, and serve as a way to replace U.S. income taxes. It also aims to counter countries that impose higher tariffs on U.S. goods, retaliate against countries that restrict U.S. exports and investment, and punish countries that do not use the U.S. dollar in international transactions.
The CTA believes that tariffs will not achieve their goals and will instead have “unintended consequences,” including a damaged US reputation, a downgraded credit rating and more trade restrictions.
Prices increase
The way tariffs work is that the cost is imposed on the importer. The company can either “swallow” those penalties or pass them on to the consumer.
So, typically, the cost of tariffs is passed on to consumers in the form of price increases.
As for the potential price increases, CTA predicts that the price hike could make laptops and tablets 46% more expensive than they are now. Game consoles could see a 40% increase in price, while smartphones could become 26% more expensive.
Prices of computer accessories could increase by 10.9%, monitors could increase by 31.2% and desktop computers by 6.2%.
The CTA also predicts that tariffs on the above products as well as video games, headphones, connected devices, TVs and batteries could reduce the purchasing power of US consumers by $90 billion.
Location is everything
The report added that tariffs may not cause much manufacturing to return to the United States. Bringing tech manufacturing back to the United States will not be a large-scale move, as Tim Cook has previously said. However, high tariffs could push manufacturing to other countries away from China.
Illustration photo.
Manufacturers would then face lower tariffs — 10% or 20%, instead of the 60% imposed on imports from China. That’s because shifting production to the US would be too costly due to high wages and other factors, and the next best option would be to choose another emerging economy.
Apple has adopted this approach since the most recent trade “war.” In addition to moving some manufacturing out of China, it has also established more manufacturing facilities in its supply chain.
For example, Apple has chosen factories in India to manufacture iPhones for the US to ensure lower tariffs.
From there, China's iPhone production will spread to other regions around the world, completely avoiding imports to the US.
It’s likely that new tariffs will be imposed quickly after President Trump takes office. Fortunately, Apple is prepared for the inevitable.
