Apple CEO Tim Cook has voiced concerns that the China trade tariffs imposed by Trump administration could put the iPhone maker at a competitive disadvantage against its biggest rival Samsung. On Friday, Tim Cook met with President Donald Trump to discuss the impact of trade tariffs on the iPhone maker.
Most of Apple’s products are made in China. In contrast, Samsung has a global manufacturing base. The Korean company manufactures its products in South Korea, Vietnam, Malaysia, India, China, and many other countries, so it will not be as affected as Apple. As a result, Cook told Trump, Samsung will be able to rake in more sales and profits. The United States and Samsung’s home country South Korea reached a trade agreement last September.
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— Donald J. Trump (@realDonaldTrump) August 16, 2019
President Trump told reporters that Tim Cook made a “very compelling argument” that the China trade tariffs would have a negative impact on Apple. The Apple CEO made a “good case” about the Cupertino company’s challenges in competing with Samsung if Apple had to pay additional tariffs on imports from China. “It’s tough for Apple to pay tariffs if it’s competing with a very good company that’s not,” said Trump.
NEW: Pres. Trump said he met with Apple CEO Tim Cook in Bedminster, adding that Cook “made a very compelling argument” that tariffs are making it hard for Apple to compete with companies like Samsung. “I’m thinking about it.” https://t.co/TVq7yKJSle pic.twitter.com/LktWUkkJdt
— ABC News (@ABC) August 18, 2019
Samsung has just announced its new Galaxy Note 10 flagship, and will launch its foldable device Galaxy Fold in September. Apple is preparing to upgrade its iPhones, Apple Watch, and other hardware products later this year. The holiday shopping season is the most important period of time for both companies. Apple CEO Cook has met with Trump several times in the last few months.
Trump has levied 10% additional tariffs on the remaining $300 billion worth of Chinese imports, including consumer electronics. In May, President Trump had increased tariffs on more than $200 billion worth of Chinese goods from 10% to 25%. The US imports more than $500 billion worth of products from China every year. China has also slapped retaliatory tariffs on the US imports.
Apple’s AirPods, HomePod, Apple Watch, and accessories will be subject to additional tariffs starting September 1. The tariffs on other products such as the iPhones and iPads have been pushed back to December 15. The three-month delay in additional tariffs on iPhones and iPads would ensure that shoppers don’t turn away from these products because of their increased prices during the holiday season.
The China trade tariffs are aimed at pressuring it into signing a trade agreement with the United States. The Trump administration has accused China of engaging in unfair trade practices. China has also been accused of stealing the US intellectual property.
With the trade war showing no signs of abating, Apple is moving its production outside China, but it’s going to take time. Tim Cook told investors during the latest earnings call that they should not rely on media reports that the tech giant was moving its production out of China.
Reputed Apple analyst Ming-Chi Kuo of TF International Securities has told investors that Apple would absorb the cost of China trade tariffs rather than passing it on to consumers. Apple can’t afford to increase the prices of its products further. The iPhones, iPads, Apple Watch, and Macs are already ridiculously expensive. Increasing the prices would hurt their sales. The worldwide iPhone revenues declined 12% YoY to $25.99 billion in the latest quarter.
While Apple will absorb the trade tariffs in the near term, its contract manufacturers are ramping up production in India and Vietnam to meet the future US demand. As per Kuo, the factories in India and Vietnam will be able to meet the US iPhone demand as early as next year. The non-China production facilities will also be able to meet the US demand for Apple Watch, AirPods, and iPads, thanks to automation.
The Cupertino company is preparing to launch the iPhone 11 series and new Apple Watch models in September. Apple is expected to host its annual hardware unveiling event on September 10. According to Ming-Chi Kuo, the new Apple Watch Series 5 would feature OLED screens, sleep tracking, more health features, and a bigger battery. The upcoming iPhones would look similar to last year’s models, but would get a faster processor and better cameras.