Abu Dhabi, UAEThursday 17 October 2019

Tariffs are hitting Airpods and iMacs: how the US-China trade war affects Apple

AirPods, the Apple Watch and certain models of iMacs manufactured in China and shipped to the US are being taxed

Apple gets its products assembled in China by Taiwanese firms Foxconn and Pegatron and then ships them to different markets across the world. Reuters
Apple gets its products assembled in China by Taiwanese firms Foxconn and Pegatron and then ships them to different markets across the world. Reuters

President Donald Trump’s 15 per cent tariffs on Chinese imports went into effect this week, making Apple products like AirPods, the Apple Watch and certain models of iMacs manufactured in China and shipped into the technology giant's home market, the US, subject to tax.

Apple’s flagship iPhone, which contributed 53 per cent of the company’s overall revenues in its third quarter, will not be impacted by tariffs until December 15.

While it is still unclear whether Apple will hike retail prices of its products or if it will absorb the burden of the tariffs itself, The National takes a look at how the company found itself in the midst of the US-China trade war.

As an American company, how is Apple exposed to US tariffs?

Apple’s supply chain largely depends on manufacturers based in China. It is getting its products - such as iPhones, iPods and iPads - assembled in China by Taiwanese manufacturers Foxconn and Pegatron and then shipping them to different markets across the world.

Will Apple increase prices?

As of now, Apple has not made any official announcement on how the increased tariffs are going to impact prices. However, it is unlikely that Apple will “let the consumers absorb the impact of increased tariffs”, according to Nabila Popal, senior research manager for the Middle East, Africa and Turkey on researcher International Data Corporation's devices group.

Industry analysts say tariffs are meant for the US market and should not impact the Middle East consumers.

“The new tariffs are supposedly in place but we haven't seen any price changes on Apple's US website and will likely have to wait till the long weekend in the US is over to hear more on this,” Abbas Ali, managing editor of TechRadar Middle East, said.

Will this impact Apple’s September 10 product event?

Apple is expected to announce upgrades to the Apple Watch, iPhone and its computers on September 10. Analysts say it is difficult to assess if prices of the new products will be influenced by the new tariffs.

“Launch prices of new flagship Apple smartphones have been increasing over the past few years. If prices follow this trend, it will be hard to tell how much of the increase, if at all, is due to the increased tariffs,” said Ms Popal.

Industry experts say even if prices were increased, this will not deter loyal customers from buying new iPhones.

“If Apple can't dodge these tariffs and has to split these costs between its profit margins and the end-user, I really don't think we will see people not buying an Apple product at 5 to 10 per cent higher prices,” added Mr Ali.

Will Apple shift production outside of China?

Apple is already considering moving as much as a third of its manufacturing out of China, but industry experts say this could take time.

“Apple will play a waiting game to see how the trade war develops,” Matthew Kendall, chief telecoms analyst at The Economist Intelligence Unit, told The National.

Updated: September 2, 2019 07:01 PM

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