Proposed U.S. tariffs could impact the price Apple charges for iPhones if they go ahead. While Apple is already dealing with a 25% tariff charged on cases and chargers coming out of China, but so far, the sale of iPhones has not been impacted. That could change.
The Office of the U.S. Trade Representative has started the approval process that could mean an additional $300 million in Chinese-made products would be subjected to tariff. This could go into effect as soon as late June, impacting iPhones and similar products.
The use of the tariffs is the Trump administration’s attempt to force the Chinese government to the negotiating table but if that doesn’t happen, the tariffs will kick in. According to J.P. Morgan via CNBC, those tariffs could mean an iPhone XS seeing a 14% price increase, which pushes a $999 iPhone to around $1142.
“We estimate a price increase of around 14% is required to absorb the impact of a 25% tariff, keeping margin dollars for all players in the supply chain constant,” J.P. Morgan said in a note to clients Tuesday.
This all depends on how Apple would handle the tariffs. It may choose to absorb them, which is unlikely. It’s suppliers may also absorb them, which is again unlikely. There’s also the chance that a combination of those may come about, or the cost could just be passed on to the customer.
Let’s hope that doesn’t happen because nobody wants to be spending that kind of money for the entry-level iPhone come July.
But J.P. Morgan said Apple is more likely to absorb the cost of tariffs and take a hit on its earnings rather than raise the price of the phone. The bank estimates a total iPhone gross margin decrease of 4% if Apple doesn’t pass the tariff costs on to customers.
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