President Donald Trump’s announcement of a 10% tariff on Chinese imports poses a significant challenge for Apple, which depends heavily on Chinese manufacturing for products sold in the U.S. The company now faces a critical decision: should it absorb the cost of the tariff, or pass it on to consumers by raising prices? During Trump’s first term, some Apple devices were subjected to tariffs. In response, Apple chose to absorb the additional cost, maintaining the same prices for U.S. customers while experiencing reduced profit margins instead of directly impacting consumers.

Apple’s Potential Response to Trump’s 10% Tariff and Its Financial Impact

Apple now faces a similar dilemma with the new 10% tariff. Gene Munster, former analyst and current Managing Partner at Deepwater Asset Management, shared his analysis on LinkedIn. He explained that if the tariff applies to the iPhone, it could reduce Apple’s earnings by 4%. Munster also predicts that Apple Watch models, which are also manufactured in China, may be the first products affected by the tariff. Additionally, he noted that many investors are hopeful that Trump will exempt Apple from the tariff, though this outcome is still uncertain.

If Apple decides to pass part of the tariff onto consumers by increasing iPhone prices, Munster estimates it would result in a 3.5% reduction in the company’s earnings. This projection takes into account a potential 5% price increase on iPhones, which could lead to a 2-3% drop in demand. Given that the iPhone represents 43% of Apple’s revenue, these changes would have a considerable impact on the company’s overall financial performance.

Impact of 10% Tariff on Apple’s Revenue and Potential Financial Losses

Furthermore, 85% of iPhone units are produced in China, and Chinese-made products account for 62% of Apple’s total revenue. In fiscal 2024, Apple generated $93.74 billion in revenue, meaning a 4% earnings reduction could cost the company approximately $3.75 billion. If Apple opts to absorb the tariff instead of raising prices, the financial impact would be significant, underscoring the potential risks the tariff poses to its business.

Summary:

President Trump’s 10% tariff on Chinese imports challenges Apple, which relies on Chinese manufacturing. Apple must decide whether to absorb the cost or raise prices. If passed on to consumers, it could reduce earnings by 3.5%. Absorbing the tariff may cost Apple $3.75 billion, significantly affecting its revenue.