Shares of Apple (AAPL) are on the rise as the United States Trade Representative announced the next steps in the process of imposing an additional tariff of 10% on about $300B of Chinese imports, including a delay for certain articles such as cell phones and laptop computers. Prior to the USTR announcement, Wedbush analyst Daniel Ives had said he believes the company will absorb the first round of tariffs, while "aggressively looking" at alternative options within its supply chain.
NEXT STEPS ON PROPOSED 10% TARIFF: The United States Trade Representative announced the next steps in the process of imposing an additional tariff of 10% on approximately $300B of Chinese imports. On May 17, USTR published a list of products imported from China that would be potentially subject to an additional 10% tariff. This new tariff will go into effect on September 1 as announced by President Trump on August 1. Certain products are being removed from the tariff list based on health, safety, national security and other factors and will not face additional tariffs of 10%. Further, as part of USTR's public comment and hearing process, it was determined that the tariff should be delayed to December 15 for certain articles. Products in this group include, for example, cell phones, laptop computers, video game consoles, certain toys, computer monitors, and certain items of footwear and clothing. USTR intends to conduct an exclusion process for products subject to the additional tariff. "The USTR will publish on its website today, and in the Federal Register as soon as possible, additional details and lists of the tariff lines affected by this announcement," the office of the trade representative announced.
FIRST ROUND OF TARIFFS LIKELY TO BE ABSORBED: In a research note prior to the news, Wedbush’s Ives said he did not believe Apple would pass the costs of the 10% tariff placed on $300B of Chinese goods by President Trump to U.S. consumers on the new smartphones hitting the market this September. All indications the analyst is seeing from the field and across the supply chain indicate the trifecta of smartphones will officially be released in the second week of September with pricing being very similar to last year's models. If the tariffs go ahead as planned this will reduce 2020 EPS by roughly 50c-55c based on his $12.80 estimate for the year, with Apple looking to absorb this first round of tariffs, he contended. However, Ives argued that Apple is "aggressively looking" at alternative options within the supply chain in light of this "U.S./China UFC trade battle" around moving 5%-7% of iPhone production to India and/or Vietnam, away from China. The analyst reiterated an Outperform rating and a $245 price target on the shares.
BOUNCE BACK IN CHINA SHIPMENTS: Meanwhile, Credit Suisse analyst Matthew Cabral told investors in a research note of his own that government data implies a big jump in July China Apple iPhone shipments. Per MIIT "non-Android" data, iPhone shipments in China rose 42% year over year in the month of July, despite a modest 3.5% year over year decline in the broader Chinese smartphone market, he noted. The analyst believes the bounce back is a positive for Apple and a "solid start" toward above-seasonal guidance for the third quarter, particularly against a backdrop of a slowing Chinese economy coupled with the re-escalation of trade tensions with the U.S. Nonetheless, Cabral argued that the trade overhang remains in focus as 10% U.S. tariffs approach. He reiterated a Neutral rating and a $209 price target on the shares.
PRICE ACTION: In morning trading, shares of Apple have gained about 5% to $210.40.