U.S.-China Trade War May Finally Be Coming for Apple

(Bloomberg Opinion) -- Apple Inc. executives have for months been publicly optimistic that everything will turn out fine in the trade battle between the U.S. and China. Well, maybe not.

President Donald Trump on Thursday tweeted — of course — that the U.S. plans to impose a 10% tariff on the remaining $300 billion worth of goods imported from China. Smartphones are among the consumer products that haven't been subject to earlier tariff rounds, but it's fair to assume they will be if the U.S. moves ahead with duties on all remaining Chinese imports. 

Apple Chief Executive Officer Tim Cook likes to say that Apple's smartphones are products of the world, and they are. But the bulk of iPhone manufacturing and assembly takes place in China. That means the U.S.-China trade war may finally be coming for Apple, and it shows that Cook's personal diplomacy with the White House and in Beijing didn't necessarily spare his company. 

If Trump imposes the fresh tariffs and Apple raises prices in response on the estimated 70 million or so iPhones sold in the U.S. each year, it most likely won't crater sales, but it won't be great for an already fragile smartphone market. Apple shares were trading down about 2% after Trump's tweet. 

Shipments of smartphones have been falling globally, and signs have continued that people in the U.S. and some other countries are holding onto their phones for longer. AT&T Inc. said recently that a record-low share of its wireless monthly customers, just 3.3%, opted to buy a new smartphone model in the second quarter. Apple has been trying to lower iPhone prices through various means, and that might be tough if the company has to figure out how to manage a 10% tariff, too.

Apple's only significant smartphone rival in the U.S., Samsung Electronics Co., spreads its manufacturing assembly around the world a bit more than Apple does. It's not clear how many of Samsung's smartphones sold in the U.S. might be subject to fresh U.S. tariffs. 

Apple investors have been well aware of the risk of tariffs landing on the company's doorstep, but the company has essentially told them not to worry. U.S. tariffs didn't come up in Apple's quarterly earnings call this week. In prior sessions, Cook and other executives have sounded confident that trade negotiations between the U.S. and China were improving and would eventually be resolved amicably.

“I can't predict the future, but I am optimistic that the countries will get through this, and we are hoping that calm heads prevail,” Cook told investors last year. He has echoed those comments at several points since then. 

That optimism has meant that Apple has said little publicly about its potential hit from tariffs, whether it would pass along costs to consumers or absorb them, or what steps it might take to mitigate the impact, such as moving some manufacturing out of China. (Apple's primary iPhone manufacturing partner, Hon Hai Precision Industry Co., has talked about having the capacity to make iPhones outside of China.) 

It's also possible that if tariffs are imposed on iPhones in the U.S., there will be ripple effects, such as China — one of Apple's most important consumer markets — retaliating in some way against Apple products. Apple's army of suppliers may feel the impact, too. That's all to say that even if Apple is well prepared for the potential arrival of tariffs on its most important product, the company's investors and most likely some of its many partners do not necessarily know about those preparations. 

Optimism is the attitude of a healthy person. But caution, or at least an indication that Apple has a sensible plan B, may have been a better strategy when dealing with uncertain geopolitical fights. 

To contact the editor responsible for this story: Daniel Niemi at dniemi1@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Shira Ovide is a Bloomberg Opinion columnist covering technology. She previously was a reporter for the Wall Street Journal.

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