Apple Predicted to Absorb Cost of New Tariffs

Apple will likely absorb the cost of any new tariffs imposed on Chinese imports, according to a new report from TF International Securities analyst Ming-Chi Kuo.

Last week, President Trump announced plans to slap a 10% tariff on another $300 billion worth of Chinese goods after the country backed out of a trade deal prior to signing.

"Our representatives have just returned from China where they had constructive talks having to do with a future Trade Deal", tweeted Trump. "We thought we had a deal with China three months ago, but sadly, China decided to re-negotiate the deal prior to signing. More recently, China agreed to buy agricultural product from the U.S. in large quantities, but did not do so. Additionally, my friend President Xi said that he would stop the sale of Fentanyl to the United States – this never happened, and many Americans continue to die! Trade talks are continuing, and during the talks the U.S. will start, on September 1st, putting a small additional Tariff of 10% on the remaining 300 Billion Dollars of goods and products coming from China into our Country. This does not include the 250 Billion Dollars already Tariffed at 25%"


Kuo believes that "the tariff may not impact the prices of Apple’s hardware products" because Apple has likely made 'proper preparations" for a such a tariff and should "absorb most of the additional costs" in the short to mid-term.

Kuo also said that Apple's non-Chinese production locations will be able to meet "most of the demand from the U.S. markets" within the next two years, addressing long-term concerns.

"If the market share of the U.S. market is lower, and the production automation degree is higher, expanding the non-Chinese production capacity" to meet U.S. demand is easier.

Here's the breakdown of Kuo's forecast by device...


Forecast
1. iPhone. Expanding non-Chinese production capacity is challenging due to the low degree of production automation. We expect that non-Chinese production locations to meet U.S. market demand in 2020.

2. iPad. It’s not difficult to expand non-Chinese production capacity to meet U.S. demand because of the higher degree of production automation and the smaller U.S. market share.

3. Mac. Though its degree of production automation is higher than the iPhone’s, the Mac’s non-Chinese production locations can’t meet demand from the U.S. market until 2021 because of higher market share of U.S. market .

4. Apple Watch. We expect there will be non-Chinese production locations, starting in 2020.

5. AirPods. We estimate that the change of AirPods’ internal design from SMT to SiP will enhance the level of production automation.

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[via 9to5Mac]