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Home / Apple / How Trump's trade war with China can increase the price of the iPhone BGR

How Trump's trade war with China can increase the price of the iPhone BGR



The stock market has been particularly volatile as late as shouldn't come as much of a surprise given Donald Trump's penchant for making threats on Twitter to increase import tariffs on Chinese-made goods. And while Trump has made similar threats before – and not followed them – it's no secret that investors have never taken care of market uncertainty.

"For 10 months, China has paid US tariffs of 25% on $ 50 billion of high technology and 10% on $ 200 billion of other goods," Trump said via Twitter last week. "These payments are partly responsible for our good financial performance. The 10% will go up to 25% on Friday. $ 325 billion extra goods shipped to us by China will remain untaxed, but will soon be at a rate of 25%." 1

9659003] While the second part of Trump's tweet is not yet implemented, it is only natural to wonder if the impact would have a 25% tariff on Apple's upcoming iPhone 11 lineup and the existing range of iPhones.

Thanks to this problem, a new report from JP Morgan (via CNBC ) relays that Apple would have to increase the price of the iPhone by 14% to account for the 25% tariff Trump threatens to implement. Therefore, the price of an iPhone XS will jump $ 1000 to $ 1,142. Meanwhile, the cost of an iPhone XR will jump from $ 799 to about $ 911.

This gives Apple some options. For example, the company can only pass on the cost to consumers. However, this strategy seems to be a non-starter, as it would have a major impact on demand and will undoubtedly harm Apple's reputation as well. Moreover, with Apple already struggling to increase iPhone demand, a price increase seems like a terrible idea.

A more likely scenario, according to JP Morgan, is that Apple should use the increase, which it can afford to do with its very large bank account.

But JP Morgan said that Apple is more likely to absorb the cost of the fare and take a hit on earnings rather than increasing the price of the phone. The bank estimates a total decline in the iPhone gross margin of 4% if Apple does not transfer the tariff to its customers.

This would obviously eat in Apple's earnings, but it would be a viable solution that would bring new iPhones into the hands of eager consumers keen to upgrade. It is also possible, according to JP Morgan, that some of the additional costs can be spread to a few parties, including some of Apple's component suppliers that may temporarily give Apple more favorable prices.

Interestingly, another study note from the Bank of America Merrill Lynch claims that Apple could also choose to move iPhone production to the United States. However, this seems to be unlikely to be given how poorly equipped the United States is in the production of scale smartphones.

Tim Cook himself touched this point late in 2017.

"China has moved into highly advanced production to find in China the cross between craftsmanship of skill and sophisticated robotics and the computer science world, Cook said while talking to a Fortune Global Forum event in China in December 2017. "The crossing that is very rare to find anywhere, This kind of skill is very important to our business because of the precision and quality level we like. "

Two years earlier, Cook said during an interview on 60 minutes .

China put a huge focus on production, in what you and I would call vocational skills. The United States over time began to quit have so many professional skills, I think you can take all the tools and doormen in the United States and probably put them in the room we are in. In China you need more football pitches.

Easy to bring iPhone production to the US is least likely of all the mentioned scenarios.

Image source: Zach Epstein, BGR


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