Apple Shares Plummet as Trump Tariffs on China Loom

Apple Inc. (AAPL) shares took a nosedive on Monday as investors fretted over the potential impact of President Trump's impending tariffs on Chinese imports. The tech giant's stock plummeted by more than 3%, leading the Dow Jones lower, as Canada vowed to retaliate with tariffs on $155 billion worth of U.S. goods.



The U.S. is set to impose a 25% tariff on Canadian goods, with Canada responding in kind. Meanwhile, Trump's 10% tariff on Chinese imports is expected to take effect on Tuesday. Apple, which assembles most of its products in China, is particularly vulnerable to these tariffs. The company has historically secured tariff exemptions, but it remains unclear if it can do so this time around.

Bank of America Securities analyst Wamsi Mohan believes that Apple could mitigate the impact of tariffs by shifting production to countries like India, Vietnam, and Malaysia. However, this would require significant investment in new manufacturing facilities and potentially retraining workers. Mohan estimates that if Apple can source 80% of its products sold in the U.S. from countries other than China, the impact on earnings per share could be minimal, even if it doesn't raise prices. However, if only 50% of U.S. Apple devices are sourced from China, it could hurt Apple's full-year earnings by 12 cents per share.

Apple could also choose to raise prices in the U.S. to offset the increased production costs due to tariffs. Mohan suggests that a 3% price hike could help maintain earnings, but it might also reduce U.S. sales if consumers are price-sensitive. If Apple doesn't raise prices, it could result in a $0.05 hit to earnings per share.



In addition to these strategies, Apple could focus on increasing sales in emerging markets to offset any decline in sales in the U.S. or China. Evercore ISI analyst Amit Daryanani notes that emerging markets are starting to become sizable enough to offset China headwinds. Apple could also leverage its strong services revenue, which grew 14% year-over-year in the December quarter, to offset any decline in hardware sales.

In conclusion, Apple faces significant challenges as Trump's tariffs on China loom. The company's supply chain diversification, particularly in India and other Asian countries, can help mitigate the impact of potential tariffs. However, Apple must also consider price adjustments or cost-cutting measures to offset increased production costs. By employing a mix of these strategies, Apple can minimize the impact of tariffs on its earnings and stock performance. As an investor, it's crucial to stay informed about the evolving situation and consider the potential risks and opportunities that arise from these geopolitical developments.