The Sino-American trade war has been raging for over a year, and Big Tech is directly in the crosshairs. Apple’s supply chains are deeply integrated into the Chinese state. Now that China’s economy is being challenged by the trade war, the tech giant is about to have its intricate systems disrupted.
The trade war has already slowed Chinese tech giant Huawei’s path toward preeminence in the 5G race, now America’s technology monolith is getting burned.
China is important to companies such as Apple, Samsung, Tesla etc. for two reasons, labor and resources. China has a GDP per capita lower than the Dominican Republic with a population 131 times the size. The result is a massive glut of cheap labor that American companies have utilized to lower labor costs. Apple hires third-party manufacturers to produce their products in China. The largest company that Apple employs is Foxconn. They alone account for 1.3 out of the 4.8 million people the tech conglomerate hires in China.
So far, Apple has been mainly spared from the effects of the war. This will all change on September 1st, as Trump has tweeted out that he is, “Putting [on] a small additional Tariff of 10% on the remaining 300 Billion Dollars of goods and products coming from China into our Country.”
This new round of tariffs will directly hit all Apple products. Resource collection, manufacturing, and assembly will all be taxed when the products enter the United States.
Apple has requested a waiver from the Trump administration, making the case that they would have to pass the cost of tariffs on to the U.S consumer. President Trump responded by tweeting out, “Apple will not be given Tariff waiver, or relief…Make them in the USA, no Tariffs!”
According to USA Today, iPhone prices could rise by $100 on the highest-end items. Presumably, similar price increases will occur for other Apple products. The price hike would amount to a 10% increase in cost, which would price out 20% of consumers, according to Forbes. The predicted lower sales scared investors with Apple Stock falling 9.25% in a single week.
A significant increase in cost appeared to be an inevitability until recently, when the People’s Bank of China (PBOC) announced they were devaluing the Yuan in comparison to the dollar. In real world terms, this means that buying things from China will be cheaper for the rest of the world. There is also the inverse effect that it is now more expensive for China to buy from every other country.
China will be effectively absorbing the cost of the tariffs. This means Apple’s prices might not rise as high as previously expected.
Apple can also avoid paying for the tariff by moving operations to Vietnam. Vietnam, which is situated next to China, has benefited greatly from the trade war. The country possesses certain similar qualities – and more importantly – one very different quality than China: While Vietnam is a destitute and highly populace nation, just like China, resulting in cheap labor en mass, it does not carry any of the tariffs that plague manufacturing a product in China. This has led companies to flee China in droves for Vietnam.
There is a chance that Apple will decide to follow suit, which could possibly even lower their prices.