Apple May Take a Hit From Escalating Trade War

You want to be the pebble in the pond that creates the ripple for change”- Tim Cook

(Source: Wikipedia)

The Building Trade War

On Monday morning, President Trump ordered the United States Trade Representatives to find $200 billion worth of Chinese goods to tariff. China responded by putting a tariff on $50 billion worth of U.S. goods. Trump has since threatened to enact yet another tariff on the country. Such escalation is sparking fear of a “trade war”.

A trade war spells trouble for Apple, a company headquartered in California and who manufactures mostly in China. The United State’s biggest import from China is smartphones, totaling $70.4 billion in 2017. JP Morgan has stated that “A substantial portion of China’s exports are western products manufactured locally — [such as] Apple (AAPL) iPhones.” Almost 20% of Apple’s revenue comes from China, as the company shipped over 41 million phones there. Although Apple has received reassurance from President Trump that they would not be on the list of items subjected for the tariff, the tech company still may be affected.

(Source: Wall Street Journal)

Will Tariffs Take a Bite out of Apple?

Apple has been increasing its inventory by 3.3 billion in preparation for possible repercussions. The company has many rightful worries on when and how they may be affected. Tariffs may affect Apple’s suppliers, causing major delays or a rise in costs. Fear also spawns over the possibility of a repeat of 2016: Apple services being banned by China. In doing so, China could make a huge push for citizens to use Chinese smartphones over American ones. Also, if China were to tax iPhones, prices would rise and Apple would be driven out of the market.

How the Market Reacted

Apple’s stock has slumped since the announcement of the additional tariffs.

(Source: YCharts)

Apple Stock News: Apple Moving Production to the US?

Apple Stock News

For the latest Apple Stock News, AAPL closed at $110.06 on Friday, November 18th, with a 0.10% gain, or $0.11 from its previous close of $109.95 per share.

apple stock news

Apple and China are trying to figure out how to compensate for the possible tariffs President Trump is trying to impose once he is sworn into office. They are studying the effect of what would happen if they move their Chinese assembling back to the United States. Apple has two Chinese Assemblers, Foxconn and Pegatron. Apple asked if they would accompany them in developing a plan to move to the United States. Foxconn, although not enthused, jumped on board with Apple while Pegatron refused to partake in the possible move. The reason being the added production costs.

MIT estimated how much added cost to the consumer would result if Apple moves all production to the United States. If Apple decides to assemble its phones in the U.S. it “would add a negligible $30-$40 to the final cost of an iPhone. (Retrieved from Investopedia)” Manufacturing the components in the U.S. would make the phone $100 more expensive at most. This doesn’t sound like much. Apple’s argument as to why moving jobs to the US would disrupt production is that there are more stringent labor laws. Also the infrastructure wouldn’t be able to keep up with production demands.

Moving Apple production to the United States may take some time. And it may need to be redesigned in order to comply with the United States labor laws. Movement to the US is possible and may not add too much in production costs.

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Apple Stock News: President Trump’s Tariffs on China Affect AAPL

Apple Stock News

For the latest Apple Stock News, AAPL closed at $105.71 on Monday, November 14th, with a 2.51% loss, or $2.72 from its previous close of $108.43 per share.

apple stock news

Once again, President Trump is affecting AAPL. Trump wants a 45% tariff increase on Chinese imports when he takes office. China is warning him that if he does make this change, that they will retaliate. During President Obama’s ascension, the US Trade and Commerce authorities began to increase tariffs on Chinese tires to 35%. As a result, China began to raise tariffs on US chicken and automotive products. This became a trade war and both sides lost business. If Trump does impose the 45% tariff, China warns that similar retaliatory action will be taken.

How will this affect Apple? If the tariff is imposed, China won’t just increase tariffs on just any items, they warn that they will impose a heavy tariff on Apple. Losing Chinese consumers of Apple would be devastating for the company, thus negatively affecting the stock price. Apple’s loss of those sales would essentially stall their growth until the iPhone 8 comes out next year. Though Apple has released more products and continually updates them, their feature item is the iPhone, and that’s where most of their surges come from. Without China, Apple will see immense losses.

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