This is not just the iPhones. More tariffs could be a "punch" for the US technology sector

May 14, 2019, 21:38 UTC

By Alyssa Newcomb

President Donald Trump has not yet decided whether he would increase tariffs on 325 billion dollars of Chinese goods, but this possibility has already scared the tech sector – and would offer a "punch "to US consumers, according to technology experts.

"We are entitled to an additional $ 325 billion, to which 25% additional duties are added" on Chinese products, Trump told reporters on Monday at the White House, adding that "I do not have the money. I have not made that decision yet. "

Last week, Trump threatened to slap a 25% tax rate on $ 200 billion of Chinese imports in an attempt to force them to yield to its trade requirements. China responded by increasing import tariffs by US $ 60 billion. On Tuesday, Trump called the "tussle" the tug of war that has swept through markets around the world and erased billions of dollars worth of business valuations.

But technical analysts say that if Trump's latest threat becomes a reality, the additional tariffs could affect the supply chain for products such as Apple's iPhone, as the company relies heavily on its factory Foxconn lighthouse located in Shenzen, China.

In this case, Apple could choose to pass on the increase in production costs to consumers, charging them up to $ 160 more for a new iPhone, according to estimates by analysts.

"Where this changes the game, not only for Apple, but also for consumers, the same is true if the Trump administration decides to attack the $ 325 billion worth of other assets. That's where the courage lies, "said Daniel Ives, general manager of the shares. research at Wedbush Securities.

With the new tariff potentially levied on $ 30 billion of printed circuit boards, computer parts and telecom devices, semiconductor companies such as Intel, Nvidia and Micron could also experience a break in their Chinese supply chains, increasing the cost of components and making production more expensive. .

Many semiconductor companies are heavily exposed in China, where they sell their products and manufacture them for shipment to the United States. Qualcomm and Broadcom generate more than half of their revenue in China. Texas Instruments, which manufactures everything from semiconductors to graphing calculators used in mathematics courses at American high schools and colleges, has a 44% exposure in China.

For Apple, the threat of higher tariffs could give way to the more "draconian" scenario, which could increase the cost of producing the iPhone, according to Ives.

"They should pass on to the consumer a price increase of over $ 100," he said. "Otherwise, if they did not do it, their bottom line would be reduced by about 10%."

Katy Huberty, chief executive and market research analyst at Morgan Stanley, said that in this scenario, Apple could charge its customers up to $ 160 more by iPhone XS. This would probably soften the demand for upgrades and would result in "considerable ramifications on Apple's supply chain," Huberty said.

In this case, Apple should take the torch, according to her, which would erase 23% of its revenue for 2020.

Another option is for companies to relocate their activities out of China, but this could take several years and involve an increased risk.

While investors "are banking on the $ 325 billion affected," Ives said that there could be some good news.

"We continue to believe that Apple and many others will remain on the list of exemptions and will not see the anger of this tariff, which is why we remain resolutely optimistic about the title," he said. declared.