Commentary: Apple Could Be a Major Casualty of Trump’s China Tariffs

Donald Trump has proposed to impose tariffs exceeding 60% on products imported from China and between 10% to 20% on imports from other countries as part of his plan to "Make America Great Again" [para. 1]. Robert Lighthizer, who was the trade representative during Trump’s first administration, stated that these tariffs would be swiftly executed once Trump takes office [para. 2]. Trump is a strong advocate for tariffs, describing them as "the greatest thing ever invented" and self-identifying as "Tariff Man." In 2018, he utilized tariffs to initiate a trade war with China, imposing an additional 25% tariff on approximately 60% of imports from China into the U.S. [para. 3].

Trump believes that foreign exporters bear the economic burden of U.S. tariffs, thinking they provide an economic advantage for Americans and help offset losses from his tax cut plans. However, this understanding is fundamentally flawed [para. 4]. In reality, competitive pressures inhibit Chinese companies from increasing prices to account for U.S. tariffs, meaning they absorb the full costs themselves [para. 5]. It is unlikely that any Chinese firm could profit with a 60% tariff, raising the prospect of them ceasing exports to the U.S. if unable to pass the costs onto others [para. 6].

Chinese firms producing or assembling goods for American companies, like Apple's products, do not pay these tariffs due to their minimal assembly fees, ensuring American firms bear the full tariff costs instead [para. 7]. Although Apple assembled some products in India and Vietnam, 90% of its products, such as iPhones and iPads, are still assembled in China. The firm must absorb these tariff costs which could lead to higher retail prices in the U.S. [para. 8]. Apple’s average product gross margin was 37.2% with U.S. sales around $167 billion. If Apple absorbed a 60% tariff, its U.S. gross margin could effectively become zero [para. 9].

Should Apple choose to transfer these costs to consumers, it might necessitate a sharp price increase, presenting a risk given its products’ premium pricing. Such an increase could prompt investors to reconsider the impacts on U.S. sales and stock value [para. 10]. Trump suggests that high tariffs could incentivize foreign firms to manufacture within the U.S., potentially creating jobs. However, enticing Apple to repatriate assembly functions is deemed unrealistic, as Apple co-founder Steve Jobs highlighted the infeasibility of bringing these jobs back due to labor costs and working conditions [para. 11][para. 12].

Moreover, transitioning Apple's assembly operations from China to India or other Southeast Asian countries is not an instantaneous process. Tim Cook, Apple's CEO, has noted that the migration to China was driven by an impressive supply chain rather than low labor costs. Despite India's ability to offer cheaper labor, it lacks a comparable supply chain [para. 14][para. 15].

The commentary by the economics professor Xing Yuqing has been edited for brevity and is available through Caixin Media’s opinion section [para. 16][para. 17].