“Eager to fix what is perceived as unfair trade practices from China, the Trump administration said it would impose a 25% tariff on more than 1,300 imported goods Chinese goods, totaling $50 billion worth of Chinese products that will feel the effect of the new tariffs annually,” Richard Saintvilus writes for Nasdaq. “As President Trump works to make good on his campaign promise to forge a better trade deals, investors grapple with the potential adverse effects retaliatory tariffs can have on corporate bottom lines, particularly from companies that derive sizable positions of their sales from the world’s most populous country.”
“Apple, which has made China its second-largest market, is high on the list of companies with the most at stake. Out of the $229 billion in sales reported for fiscal 2017, about $45 billion, or roughly 20% came from China, according to financial researcher FactSet,” Saintvilus writes. “That $45 billion figure ranks the highest among all S&P 500 companies.”
“However, from a percentage perspective, the story changes. That 20% of Apple’s sales comes from China is not that significant,” Saintvilus writes. While a trade war, assuming one ensues, could result in higher manufacturing costs for Apple, and thus eat at its profit margins, the impact would be minimal, according to Gene Munster, analyst at Loup Ventures. And that’s because the bulk of Apple’s products are manufactured outside of the United States. What’s more, the tariffs — as it stands — would impact raw materials like aluminum and steel, meaning Apple would see little impact to its products, if any.””
Read more in the full article here.
MacDailyNews Take:
A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. — Warren Buffett
Do you think the US & China should have equal & fair rules for cars? Meaning, same import duties, ownership constraints & other factors.
— Elon Musk (@elonmusk) March 8, 2018
SEE ALSO:
Apple CEO Tim Cook heads to China as President Trump orders 25 percent tariffs on up to $60 billion in Chinese imports – March 23, 2018
BoA Merrill Lynch: Apple is prepping a ‘foldable’ iPhone; U.S. and China trade tensions not an issue for Apple – March 23, 2018
Designed in California. Assembled in China. How Apple’s iPhone skews U.S. trade deficit – March 21, 2018
President Trump blocks Broadcom-Qualcomm deal over China concerns – March 13, 2018
Elon Musk sides with President Trump on trade with China – March 8, 2018
Analyst: President Trump’s tariff impact on Apple would be just a ’rounding error’ – March 7, 2018
Apple and other tech firms caught in crossfire as U.S.-China trade war looms – March 7, 2018
Apple Macs caught up in President Trump’s aluminum tariff plan – March 2, 2018
The risk for Apple is not so much any financial tariffs which may be imposed, but whether a groundswell of popular opinion in China builds up and turns the population against buying American products at all.
Tariffs can be imposed or suspended at the stroke of a pen, but if the Chinese people are persuaded that American products are undesirable, it would be a situation which is likely to last for much longer and would definitely impact Apple. Apple can absorb tariffs, but can’t do much if the demand for it’s products abruptly disappears in China.
It would be much better if level heads had prevailed, but that’s not the case and some pretty obvious unwanted consequences will become very significant.
It’s not just China either. America’s sudden about turn over trading with other nations puts into question whether it’s actually worth dealing with the USA when they try to change the rules so abruptly? Most countries expect trading arrangements to be long term, stable agreements between allies, neighbours and friendly nations. You disrupt such arrangements at your peril.
Much of iPhone consists of items manufactured in the US or outside of China. China’s value-add to the iPhone is actually very small in relation to the overall product. Additionally, items like iPhone packaging, assembly cost are not on Trump’s list for increased tariffs.
The Chinese government exerts very little influence on Chinese consumer buying decisions. Its control is limited (just as it is in the US) to tariffs making a product more expensive.
Imposing tariffs on a product that is assembled in China, employing hundreds of thousands of Chinese and includes some Chinese components is counterproductive and just will not happen.
“America’s sudden about turn over trading with other nations puts into question whether it’s actually worth dealing with the USA when they try to change the rules so abruptly?”
This is an uninformed opinion based on nothing. US trade deficit for March alone was $57.8 Billion. That’s $57.8 Billion in goods that weren’t manufactured in the US. That equates to about $700 Billion per annum and is growing. Those are US$ leaving the US every year that do little to support the US economy.
This isn’t the first time the US has waved economic sanctions against countries on the issue of trade imbalances. In the last 20 years, the US has threatened Japan, France, and Canada with tariffs on its US-bound exports. In the past President Reagan signed legislation to combat the trade imbalance.
The difference today is style. Trump is a hard negotiator. He is not a trained foreign service diplomat, expert in not offending. Trump is not adverse to angering adversaries. But that is the key to the success he is having on the foreign front, i.e., when was the last time N Korea’s tin horn dictator requested a sit down with the US, or talked nicely with S Korea (not in my lifetime)?
Bottom line is that the US remains the largest economy in the world. Every nation wants access to our markets. They may not like it, but a large portion of their economy is dependent on exports to the US. Accommodations will be made and life will go on as before, but with a smaller US trade deficit.
The leader of North Korea has requested meetings with practically every president. Except when Obama said he would be open to it, the conservatives shouted at him.
http://www.newsweek.com/fox-news-video-trump-obama-north-korea-848618
Which is why Apple, should keep cash (200 billion) on hand, for that rainy day……
Apparently, even Apple wants to cut back on holding lots of cash in the future, so that may be a problem. Of course, Apple could quickly change its intention of massive stock buybacks and continue holding lots of cash for a rainy day now that this tariff crap is happening.
No point in it being said that Apple should be able to take the trade tariffs as well as any other company. The news media is still going to lead with how devastating those tariffs are going to be to Apple in order to get those all important clicks. I’m sure there must be plenty of other companies just as vulnerable or more vulnerable than Apple but Apple will always get mentioned. One would think Boeing is quite vulnerable to the aluminum tariffs, but Boeing stock is flying as high as can be. In fact, it was mentioned that Boeing would see little impact from tariffs so then why should Apple have any serious problems. Apple has more cash on hand and less debt than Boeing.
Anyway, it’s too early to tell what the effect will be for Apple. Anything said now is mere speculation. China has a fairly large stake in Apple in terms of manufacture and assembly of Apple devices. They’d also be hurting themselves in the end. I believe a lot of American companies will be affected by the tariffs but only time will tell which company gets hurt the most.
Cash is King….
“They’d also be hurting themselves in the end.”
China acknowledges this and has referred to a trade war as a “lose-lose situation”. China doesn’t want a trade war with America and didn’t start one, but when pushed, they have no choice but to react, even if it has negative consequences for them too. There are inevitably casualties during wars, most people readily understand that.
It’s also important to bear in mind that Xi Jinping is now the president of China indefinitely. He doesn’t need to be re-elected after a few years and doesn’t have any significant opposition. As a result, he can plan for the very long term and plan strategically. That’s a luxury which western leaders in democratic countries do not have.
“One would think Boeing is quite vulnerable to the aluminum tariffs, but Boeing stock is flying as high as can be”
Boeing is quite like Apple in China. Boeings “manufacturing” facility in Everett WA is where its aircraft are assembled. They are assembled from components and substructures that are manufactured all over the world, then shipped to Everett for assembly. China is an important manufacturing partner of Boeing’s. Any attempt by the Chinese to retaliate against Trump’s tariffs via Boeing will be counterproductive, and the Chinese know it.
Quite dumb on Boeing part, making anything in China, at least with Apple the OS is beyond the Chinese, Korean, Japanese, and Indian remit.