Last week, Donald Trump's administration announced a extremist customs plan, covering virtually all countries of the world. This means a sharp increase in import costs, which immediately affected the stock marketplace – Apple shares fell by nearly 10%. Given that the Apple supply chain is almost entirely based on strategical abroad production, this is very bad news for the company.
According to Mark Gurman of BloombergHowever, Apple does not intend to stand by and watch the situation. The company is considering respective ways to mitigate the impact of tariffs on its operations and keep competitive prices.
Since the launch of iPhone X in 2017, Apple in the United States has not changed the base price of the top model – it is inactive $999. Similarly, the company's another products have been comparatively unchangeable over the past decade. However, the fresh customs policy can radically change that.
The planned duties include, among others, 54% for products from China, 26% from India and 46% from Vietnam. This represents a serious threat to the current business model for Apple. Worse still, China – Apple's key production partner – has not been talking about leniency. This is not the case with India and Vietnam, who effort to scope an agreement with the US administration before the entry into force of the duties, scheduled for Wednesday 9 April.
Among the possible actions Apple can take, Gurman mentions:
- negotiations with component manufacturers to reduce production costs,
- Apple's partial acquisition of costs (the company accounts for an average of 45% of the profit margin),
- temporary price changes during the ‘situation assessment’ period,
- further diversification of the supply chain – although not taking into account US production.
Additionally, Apple has been stocking products in the USA for respective months now. As a result, the goods which came into the country prior to the introduction of the duties will not be covered. This will let the company to keep current prices at least until the launch of fresh iPhones in September.
However, there is simply a hazard – if Apple decides to rise only in the autumn, they can dominate the media transmission around fresh devices, diverting attention from their method innovations.
Gurman points out that Apple is not afraid to rise its prices, but will do anything to guarantee that fresh tariffs are as low as possible to customers. It is besides possible that Tim Cook will one more time fight for an exception from customs – as was the case during Trump's first term.
