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How will prices for Apple gadgets change due to US-China trade war?

UNITED STATES, WASHINGTON (OBSERVATORY) — The recent increase in tariffs on Chinese imports introduced by the Trump administration has come into effect and will affect some of Apple’s popular products.

Since September 1, the United States and China have carried out a mutual increase in import duties. Over the past week, bursts of optimism have been continually observed in the markets. Donald Trump periodically reported on telephone conversations with China at the highest level, later this was confirmed in Beijing.

However, this did not lead to anything. On Sunday, the Trump administration announced an increase in tariffs on Chinese imports of $ 112 billion. Literally a minute later, China responded with an increase in tariffs of $ 75 billion, with a blow to the Trump political support center – factories and farms in the Midwest and south of the country.

According to Bloomberg, a 15% increase in import duties will affect Apple products such as Apple Watch, AirPods, HomePod and some Beats headphone models. Also affected will be iMac computers, components needed to repair iPhone, and storage components for iPhone.

Tariffs will not affect the cost of current iPhone models until December, when Apple starts selling new models of smartphones, the announcement of which is expected in September. Most of Apple’s supply chain is based in China, including enterprises operated by Foxconn Technology Group, its main iPhone assembly partner.

It is unclear whether Apple will offset the tariffs at the expense of consumers, which will make the affected products more expensive. Analysts at Morgan Stanley believe that Apple is more likely to not raise prices for its products, as further price increases may adversely affect the global plans of the Cupertian company, which has recorded a decline in iPhone sales over several quarters.

Apple Watch and AirPods have become increasingly important to Apple in recent years. Despite the fact that wearable devices make up only part of Apple’s total revenue, a decrease in demand for them due to a possible rise in price can significantly affect the company.

According to the results of the financial report for the third quarter of 2019, sales of Apple Watch, AirPods and other “related” devices increased by an impressive 48%, exceeding the volume of iPad sales and almost catching up with the Mac. Experts predict that sales of this product category will become the third largest source of revenue in the fiscal year 2020.

Earlier this month, Wedbush Securities analyst Daniel Ives said Trump’s tariffs on Chinese imports could be a “potential blow to the stomach” for Apple. According to reports, Apple is considering the possibility of transferring part of the production from China, according to reports of Bloomberg and Reuters. But this is likely to take a lot of time and resources, Ives says.

The partners Apple is pushing to move production outside of China include Foxconn, Pegatron and Wistron, Quanta Computer (makes MacBook laptops), Compal Electronics (makes iPad tablets) and Inventec Corp, Luxshare-ICT and Goertek (manufacturers of AirPods earphones) .

According to Nikkei, Vietnam or India could be key iPhone makers. Apple has already begun production of its lower-priced smartphones in India. Last year, it was reported that Cupertino was thinking about launching their more premium devices in this country.

Apple has not set a deadline for its suppliers to send their business offers. The transfer of production will take a lot of time, so China, in any case, will remain the main place of deployment for Apple contractors. Sources say that after choosing a location for new factories, it will take at least 18 months to start production. Currently, more than 90% of Apple products are collected in China.

It is estimated that about 5 million jobs in China depend on Apple’s production in the country, and the company itself has about 10 thousand direct employees there.

Wedbush analysts expect Apple stock to rise to $ 235 if tensions between the US and China can be reduced. On the other hand, if the second wave of tariffs forces Apple to place orders for the production of mobile devices imported into the United States outside the PRC, then the company’s revenue in the next few years will drop by 10-15% from the conditional “peaceful level”.

Earlier, representatives of Foxconn (Hon Hai Precision Industry) stated that approximately 25% of orders for the iPhone are executed outside of China, and therefore the needs of the US market can be met without any special consequences for consumers in the United States. Foxconn said they have ample opportunity to move production outside of China.

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