Apple customers may pay price of trade tension

A customer stands beside an illuminated Apple logo at an Apple store in Shanghai on Aug 6, 2018. Photo via CHINA DAILY/ASIA NEWS NETWORK

BEIJING — Apple Inc is likely to suffer greatly from the ongoing China-US trade tension, as experts said moving production of its iPhones from China to the United States could lead to a price rise of as much as 20 percent.

The comments came after US President Donald Trump asked the iPhone maker to relocate its plants to its home turf, in order to avoid his proposed tariff on Chinese imports.

Wamsi Mohan, an analyst at Bank of America Merrill Lynch, said in a research note that Apple may give in to Trump’s request by asking its partners to bring some iPhone assembly operations to the US, which will lead to the higher prices.

“If Apple shifts 50 per cent or 100 percent of iPhone assembly to the US, it would increase iPhone prices by 14 percent and 20 percent, respectively,” Mohan said.

Currently, most of Apple’s manufacturing operations are located in China. And in the quarter ended in June, the US tech giant posted a revenue of $9.55 billion from the country, marking a 19 percent year-on-year growth and representing 18 per cent of its total sales.

With such strong ties to China, it was inevitable that Apple would feel the pinch of the mounting trade disputes, especially after Trump said on Friday that he had tariffs planned for an additional $267 billion worth of Chinese goods. That would be on top of $50 billion of goods already hit by 25 percent duties and another $200 billion on which Washington is poised to raise tariffs.

On Monday, Apple fell 1.34 percent to $218.33 on the Nasdaq. CEO Tim Cook is expected to unveil new iPhones and product updates on Wednesday.

Last week, Apple filed a letter with US officials, saying Trump’s proposed tariffs on $200 billion worth of imported Chinese goods would affect a wide range of Apple products, including the Apple Watch, AirPods, Mac Minis and Apple Pencils.

Xiang Ligang, CEO of telecoms industry website Cctime, said Apple’s dilemma highlights how US aggressive tariff policies will disrupt the global electronics industry chain.

“Apple chose to produce most of its iPhones in China, because this is the most cost-effective choice in terms of labour cost and industrial aggregation effects. That is the result of decades of market playing a decisive role in allocating resources,” Xiang said.

But the additional tariffs the US plans to levy on Chinese imports are damaging the industrial layout and in fact, would hurt US companies more than Chinese enterprises, he added.

China, as the world’s largest smartphone market, has been contributing to a big share of profits of US tech heavyweights including Apple and Qualcomm Inc in recent years.

“iPhone is the cash cow of Apple. Any increases in cost would either be passed on to customers, resulting in lower sales, or be absorbed by Apple, eroding its bottom line,” Xiang said.

On Tuesday, Chuck Robbins, chairman and CEO of Cisco, told CNBC that the US tech company might have to deal with the fallout from US-China trade tensions by passing on higher prices to its customers.