Home » Stocks & Shares » Apple’s supply chain to face an existential threat if the U.S proceeds with December 15th tariff hike

Apple’s supply chain to face an existential threat if the U.S proceeds with December 15th tariff hike

Michael Harris
  • December 12th 2019, 14:09
  • Last Updated: December 12th 2019, 19:16
  • The majority of Apple's suppliers and manufacturing partners are located in China.
  • Apple's iPhone will see an additional 15% tariff if the U.S proceeds with the December 15th tariff hike.
  • 15% tariff on iPhone will roughly increase the price of the product by $150.
  • Raising prices to compensate for increased tariff will weigh on the demand by 6% to 8% in 2020.
  • Keeping current prices despite the added tariff will push earnings per share down by 4% in 2020.

With China insisting the United States of America to delay the upcoming tariff hike on December 15th, the technology giant, Apple Inc., may be able to sidestep a massive threat to its line of products that defines its success, the iPhone.

If the U.S proceeds with the next round of tariff hike on December 15th, Apple’s iPhone will see an additional 15% tariff from Sunday onwards. The majority of suppliers and manufacturers for the world’s largest technology company are located in China. According to the experts, it is impractical for Apple to move production from China to other countries on such short notice. The tech giant is counting on its White House lobbying campaign to avoid higher tariffs on its products in the upcoming week.

Apple Currently Pays 30% Duties On Multiple Products

According to CEO Tim Cook, products like AirPods, Apple Watch, HomePod speaker, and iMac desktop computer are already subject to 30% duties. The company has so far not increased the prices of its products to compensate for the higher tariffs. As per the analysts, an additional 15% tariff on iPhones will roughly increase the product price by $150. If Apple continues to not compensate for the higher tariffs via increased prices, the earnings per share for the tech giant can be expected to decline sharply by 4% in the upcoming year.

On the contrary, if the prices are raised accordingly, iPhones demand will likely drop by 6% to even 8% in 2020, as pointed by the analyst Dan Ives of Wedbush Securities.

The alternative for Apple is to file for tariff waivers as it did earlier with Apple’s Mac Pro, AirPods, Apple Watch, and a few of the iPhone parts. This, however, exposes Apple to another hiccup of promising to move production to the United States of America.

Wall Street Is Confident That The Tariffs Will Be Delayed

On the contrary, Wall Street remains confident that the White House will decide in favor of postponing or completely abandoning the tariff hike on December 15th in order to push the phase 1 deal with the Asian superpower. Despite the uncertainties, however, Apple has been hitting record highs in the stock market in the past few weeks. Apple’s analysts are also expecting the 2019’s holiday season to remain upbeat for the company with fiscal 2020 seeing further upward rallies in the stock market.

In the after-hours trading on Wednesday, the stock was seen trading at $271.05 that marks a record high for Apple. The tech company currently has a market cap of $1.20 trillion.

About the author

Michael Harris
Michael Harris
I began trading in my early 20's at a local company and since then have combined my knowledge and love of content to become a news writer. I am passionate about bringing insightful articles to readers and hope to add some value to your portfolios!

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