Apple may soon be forced to raise iPhone prices if Donald Trump’s latest round of proposed tariffs on Chinese imports goes into effect.
Trump wants to slap tariffs on the remaining $300 billion worth of Chinese goods. The Office of U.S. Trade Representative began the approval process this week. Those tariffs could go into effect by June 24 and if that happens, some analysts predict Apple will raise iPhone prices by 14% or more to offset the costs.
If the tariffs are approved, the iPhone XS price would go from $1,000 to $1,142, according to J.P. Morgan’s estimates.
Trump’s trade war hits Apple
“We estimate a price increase of around 14% is required to absorb the impact of a 25% tariff, keeping margin dollars for all players in the supply chain constant,” J.P. Morgan said in a note obtained by CNBC.
Other analysts aren’t as optimistic. One dilemma Apple could face is whether or not to bring iPhone manufacturing to the U.S. to avoid tariffs. That would likely be even more costly for consumers though. Bank of America’s analysts told investors it estimates a 20% price increase of the iPhone if 100% of the phone is made in the U.S.
Jacking up iPhone prices either due to manufacturing in the U.S. or tariff fees for making it in China would undoubtedly cause fewer customers to upgrade their handsets. Apple is currently in an iPhone sale slump and has been tryin to ignite growth, but Trump’s tariffs may push sales even lower.
J.P. Morgan believes Apple will most likely absorb the cost of tariffs rather than pass them off onto customers. Investors would then take the biggest hit as total iPhone gross margins depress. Considering how much investors have made of AAPL shares the last decade, that seems like the most reasonable approach for weathering the trade warm storm until cooler heads finally prevail.
This article was originally posted here