By Adam Levine
President-elect Donald Trump has made it no secret that tariffs are one of his preferred economic policies. "To me, the most beautiful word in the dictionary is tari ," he said in an October interview at the Economic Club of Chicago. "And it's my favorite word."
The details are still sparse, but Trump campaigned on a 60% tariff for Chinese imports, and 10% or 20% elsewhere around the globe.
In the past year, the U.S. imported around $4 trillion dollars in goods and services, according to the Census Bureau. Of that, $433 billion was Chinese goods and about a tenth of those imports, $42 billion, were smartphones. Over 80% of smartphone imports come from China, and there is no substantial U.S. production.
Probably the most famous Chinese import is Apple's iPhone. According to web analytics firm Statcounter, the iPhone's U.S. mobile market share is 57% in 2024, so some large portion of smartphone imports from China is iPhones.
The iPhone 16 starts at $799 in the U.S., but there are domestic components built into that price. In the first place, there is Apple's product gross profit margin of 37% in fiscal 2024. Those profits are layered on top of the product's cost and are free and clear of any tariffs. Other domestic costs to iPhone production, including retail and advertising, would also be excluded from any tariff calculation.
Ultimately, roughly 45%-50% of the cost of an iPhone is imported content. A 60% tariff on the imported portion of the price would therefore come to a tax on Apple of roughly $216 to $240 per iPhone 16, an effective rate of 27% to 30%.
Apple has been here before. Its products were not impacted during the first Trump administration, when the company got exemptions from tariffs on Chinese imports.
If a 60% tariff were to hit Apple this time, the company would have to navigate those levies through some combination of lower profit margins and higher prices. To the extent that the company is forced to raise prices, it would hamper demand. To the extent it takes a hit to margins, earnings would be impacted. Either way, Apple stock is likely to be hurt.
Like all taxes, tariffs create an incentive to avoid them, driving behavioral changes that are sometimes unintended. The first round of Trump tariffs was a boon for some other countries. For example, Vietnamese exports to the U.S. are up 170% since 2018, an 18% annualized rate. Apple may react to tariffs by moving more assembly to India, a process already underway.
Apple did not respond to a request for comment on the potential tariffs.
The Consumer Technology Association, which boasts Apple as a member, has strongly opposed tariffs in the past, including in a new study that it published in October.
"At their core, these proposals are tools for the U.S. government to grab as much tax revenue as possible from the American people," the CTA wrote. "We have seen this movie before and know the ending. The proposed tariffs will not create more employment or manufacturing in the U.S. In fact, the opposite may happen where our productivity decreases and jobs may be lost over time when workers and businesses have less affordable access to technology."
Much is still up in the air. The incoming Trump administration hasn't yet issued a formal tariff policy proposal, and parts of the plan may have to go through Congress.
Sen. Rick Scott, (R., Fla.) a candidate to be the next Senate Majority Leader, has said that broad tariffs "most likely" will require sixty votes in the Senate to pass, needing help from multiple Democrats. If Senate Republicans cannot figure out a way to pass tariffs under the reconciliation process, which requires 50 votes, the path in the Senate could be difficult.
Write to Adam Levine at adam.levine@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
November 13, 2024 11:16 ET (16:16 GMT)
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