Apple to absorb most of the additional tariff costs to keep prices unchanged
President Donald Trump is expected to impose, starting September, another 10 percent tariff on additional $300 billion-worth of goods imported from China. Whether Apple is going to fall under that category or not is yet unknown, but the iPhone-maker has reportedly prepared for the scenario, Apple insider Ming-Chi Kuo said in an investor note concerning the Apple supply chain.
According to Kuo, Apple products’ prices will remain unchanged, as the company made preparations in order to “absorb most of the additional costs” for the short and mid-term. He said that despite the tariffs, Apple “prices of hardware products and shipment forecasts for the U.S. market will remain unchanged”.
Additionally, Kuo also said that within the next two years non-Chinese production facilities could well cover the needs of the U.S. market in terms of Apple products. Kuo predicts that:
- iPhone. Expanding non-Chinese production capacity is challenging due to the low degree of production automation. We expect that non-Chinese production locations to meet U.S. market demand in 2020.
- iPad. It’s not difficult to expand non-Chinese production capacity to meet U.S. demand because of the higher degree of production automation and the smaller U.S. market share.
- Mac. Though its degree of production automation is higher than the iPhone’s, the Mac’s non-Chinese production locations can’t meet demand from the U.S. market until 2021 because of higher market share of U.S. market.
- Apple Watch. We expect there will be non-Chinese production locations, starting in 2020.
- AirPods. We estimate that the change of AirPods’ internal design from SMT to SiP will enhance the level of production automation.
Non-Chinese production for Apple products could look like the situation described in the image below: