Apple feels gravity as the Trump tariff hammer falls

Apple’s leadership is no doubt scrambling to identify a silver lining (if there is one) as the storm of US President Donald J. Trump’s punishing range of global tariffs rains heavily across the company’s supply chain. Even Apple’s attempt to mitigate the impact of anticipated tariffs on Chinese goods with big investments in manufacturing in India, Thailand, and elsewhere wasn’t enough. 

Most of the world will be affected by Trump’s tariffs, which the company is unlikely to be able to swallow whole without raising product prices.

The scale is huge — 54% (the 34% hike announced last night in addition to an existing 20% tariff) on Chinese imports; India gets a 26%, tariff, Vietnam, 46%, Taiwan, 25%, and Thailand gets a 36% slap.

Insert synonym for ‘ouch’ here

These tariffs are consequential. 

Rosenblatt analyst Barton Crocket estimates Apple must realistically prepare itself for an additional $39.5 billion in costs as a result, which will directly impact iPhones sold in its biggest market (the US) and made in China. This will also affect China’s economy in terms of lost sales.

Naturally, Apple’s stock price fell, and was off a dramatic 8.9% by early afternoon today.

To claw that cash back, the company will have little choice but to boost hardware prices across the board, including those goods outside the US. When it does, it will no doubt lean in on its services business in an attempt to help mitigate the consequences of these tariffs. What else can a business with a responsibility to its shareholders do?

One thing it will do is try to win exemptions on the application of these tariffs against its products. Perhaps, for example, Apple can point to the investment it and its partners are making in processor manufacturing in the US. The argument: any tariff should be waved as that component will eventually be made in the US, but the factories aren’t ready yet. Perhaps that is part of the reason semiconductors are to be exempted from reciprocal tariffs.

Apple might also consider shifting more production to India, particularly if the government there secures positive trade deals with the US. Other responses, according to analyst Ming-Chi Kuo could include raising iPhone Pro prices as consumers of those products might be more accepting. The company could also increase carrier subsidies, he said, as well as cutting trade-in values and, of course, squeezing suppliers for lower costs.

Another thing Apple can do is use this moment as a golden opportunity to re-purchase its shares. It announced a $90-billion-share repurchase budget in January, and the state-mandated damage its stock is currently taking means it will be able to buy more shares for the same money — assuming it doesn’t use some of this capital to defer the impact of the tariffs (unlikely).

Why manufacturing won’t come back

What Apple won’t be able to do is move all of its manufacturing to the US. There are several reasons, but perhaps the most significant one is that there is nothing like enough trained staff for some of the most advanced manufacturing jobs available in the US. There’s been little investment in training up people for those jobs, and there is no way that training can be delivered before the tariffs strike later this week. 

That means any manufacturer, including Apple, rushing to migrate more manufacturing to the US will choose to deploy automation and AI in their factories. Make no mistake, Apple and its manufacturers already make copious use of smart manufacturing systems, which means any manufacturing facilities they open in the US will be automated. Not only this, but there’s a matter of scale. There are physical, financial, and human limits to how many manufacturing lines can physically be built in any given time frame. As a result, building enough factories within a stone’s throw of the “Gulf of America” at the scale needed to meet US market demands is probably not going to happen. 

The art of the deal

Despite this, Apple may have one positive thing it can achieve on the back of these Trump taxes (which will soon be felt by US consumers in the form of higher prices): the new tariff against India can be directly seen as a challenge for the tariff-led protectionism that exists in that market. Ironically, India and other nations hit by these tariffs may now think dropping their own tariffs on US goods could help them at least reduce the tariff applied to their exports. That certainly seems to be the point of these taxes.

Will they work? 

Realistically, it is possible the US can convince some other nations to submit to its approach to taxation, though it could just as easily fan the flames of nativist nationalism, fostering retaliatory tariffs from others and further raising prices for US consumers. No man is an island, after all, and we are all involved in the economy mankind makes.

Follow the money

In my view, a lot now depends on how the administration chooses to deploy the tens of billions it raises through the exercise. Will this money be fed directly into the US economy in a positive way, or does the government simply intend to build up a huge pile of currency for bragging rights or tax cuts?

I don’t know the answer. But in the short term I do think it reasonable to predict Apple, like every manufacturer, must become accustomed to a higher cost of doing business in America.

While we wait, Apple’s stock is down sharply — economic gravity in action.

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