Apple shares fell nearly $10 or 4.62% today after US President Donald Trump tweeted “ordering” US companies to stop doing business in China. While the president is not a dictator and cannot simply tweet such an order, the fear is that he will do something within the powers of the president and force US companies to withdraw from the country. Apple designs its products in the US. But it assembles mainly in China.
CNBC now reports that the president has raised tariffs on Chinese imports worth $250 billion to 30% from 25% starting October 1st. And the rates for another $300 billion of assets that will come into effect on September 1st will now be 15% instead of the 10% initially announced. Apple AirPods and Apple Watch are included in the latter group. Originally, Apple’s iPhone and other Chinese smartphones were also part of this level of products, but Trump does not charge taxes on these products until December 15, so that the additional fee does not affect Christmas sales of smartphones and others devices.
While Trump worried about an indicator called an inverted yield curve that has a great record in forecasting recessions (I’d like to explain it in the comments section if anyone wants to know), what he doesn’t understand is that the escalation rates will cause more damage to the American economy. The tariffs are nothing more than an import tax that US companies pay when they import selected products from China. These companies can consume the additional costs themselves and damage their profit margins or transfer all or part of the tax to consumers in the form of higher prices. Apple consumed the import tax on some iPhone and iPad cases to keep the price for American consumers unchanged. But it is not clear what the company will do with the famous Apple Watch and AirPods. The new versions of both could be presented on September 10th.
US companies and consumers are most affected by the tariffs imposed by Trump
In June, news emerged that Apple was studying the move in the production of its devices outside of China. While the company had produced old iPhone models in India to avoid an import tax in that country and to meet the demand for cheaper models in that market, the production of iPhone 2018 in India has begun. However, the facilities in the country are not close enough to meet Apple’s needs. And any movement outside of China could take years to complete. A new supply chain should be found and new workers should be properly trained. Apple could end up moving up to 30% of its production to a country like Vietnam.
What sparked this trade war is the large US trade deficit with China. Most economists will tell you that this simply means that American consumers are richer than their Chinese counterparts and can afford to buy more products from China than they buy in the US. However, President Trump considered the deficit as an indicator indicating that the US is losing some sort of commercial game with China. In May, he lied by posting a tweet that said that due to the tariffs, millions of dollars had flowed into the US Treasury from China. All the money that enters the Treasury from the rates comes from US companies like Apple.
On several occasions, Trump has told Apple that to avoid tariffs, the company should move production of its devices to the US. And earlier this week, the president met Apple CEO, Tim Cook. During the meeting, Cook told Trump that the tariffs are offering Apple’s best rivals an unfair price advantage. This is because Samsung phones imported to the US. From South Korea, they are currently not subject to US import taxes. And this is the problem with the trade war between the US and China; The tariffs imposed by Trump are hurting American companies like Apple more than they are affecting the Chinese. This is somewhat similar to Huawei’s export ban. Of course, in the end, it will be a nuisance to Huawei, but US technology companies like Qualcomm, Intel and Micron will miss the $ 11 billion supplies that Huawei has purchased from the US in 2018.
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