President Trump just took the China trade war to a new level, and it could be a 'gut punch' for Apple, analyst says
- President Trump's 10% tariff on $300 billion worth of Chinese goods could weaken iPhone demand and negatively impact the company's earnings per share, according to analysts at Wedbush Securities.
- In a new note outlining the potential ramifications of the tariff on Apple, the firm called the move a "potential gut punch" for the company.
- If Apple absorbs the tariff, it could negatively impact the company's earnings per share for the fiscal year 2020 by roughly 4%.
- The newly announced tariff comes after reports had indicated Apple would move production of the Mac Pro from the United States to China.
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President Trump's decision to impose a 10% tariff on $300 billion worth of Chinese goods could spell trouble for Apple, potentially weakening iPhone demand and negatively impacting the company's earnings per share, according to Wedbush Securities analysts Daniel Ive and Strecker Backe.
In a new note outlining the possible ramifications of the tariff on Apple, the Wedbush analysts called the move a "potential gut punch" for the company. If Apple fully absorbs the tariff, it could negatively impact the company's earnings per share by roughly 4% in the fiscal year 2020, the analysts say.
Should Apple pass the tariff on to consumers, it could weaken iPhone demand by about 6 to 8 million units, based on Wedbush's analysis over the next 12 months driven by its overall unit forecast of 185 million iPhones for the fiscal year 2020.
"After Cook & Co. have navigated significant noise and headwinds the last thing the bulls wanted to see today was this news from the Trump administration as Apple is clearly caught in the crossfires between DC and Beijing," the analysts wrote in the note.
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Wedbush maintains its outperform rating for Apple.
Apple did not immediately respond to Business Insider's request for comment about how the new tariffs may impact its business.
It's not the first time Wall Street has discussed the possible consequences Apple could face as a result of the ongoing trade dispute with China. Back in May, a team of analysts at Morgan Stanley led by Katy Huberty suggested that the price of the $1,000 iPhone XS could see a price hike of $160 because of the 25% tariff on $200 billion worth of Chinese goods the Trump administration previously introduced.
President Trump announced on Twitter on August 1 that an additional tariff of 10% on $300 billion worth of Chinese goods would go into effect on September 1.
China is critical for Apple for two reasons: The company relies on facilities in the China to manufacture products like the iPhone, and the Greater China region is Apple's third-largest market behind the Americas and Europe.
Reports from Bloomberg and The Wall Street Journal had also suggested that Apple was planning to move production of the Mac Pro, which had been the only major Apple product made in the United States, to China. But CEO Tim Cook recently said on the company's earnings call that it wants to continue making the Mac Pro in the US, following a report from Bloomberg that it had sought exemptions from Trump's China tariffs on components for the new computer.
Apple has eyed shifting some production from China to India and Vietnam, according to reports from Bloomberg and Reuters.
But doing so would represent a huge undertaking. In a best-case scenario, Apple may only be able to move between 5% and 7% of the production of some iPhone models to India over the next 12 months, Ives previously said to Business Insider.
"Apple has really bet the company's production on China and on Foxconn," he said to Business Insider in June. "It would be like General Motors or Ford saying we're going to move away from Detroit."