Trade war could force US tech firms to pass on costs to consumers

The latest round of US and China retaliatory trade tariffs are anticipated to have the power to raise prices of consumer electronics products in the US, analysts have warned.

While previous tariffs in the US-China trade-war passed almost unnoticed in the eyes of US consumers, this upcoming round could hurt more – especially those buying consumer electronics, analysts believe.

Earlier rounds of the trade war included tariffs aimed at goods in the production pipeline and by and large did not trickle down to consumers because manufacturers absorbed the increased cost.

The latest development in the conflict between the US and China anticipates tariffs on an additional $300bn in goods from China, effective on 1 September 2019. It comes after last year’s tariffs issued by the Trump administration were applied to around $250bn in Chinese-made goods – targeting industrial materials and parts – and news in May that the US more than doubled its tariffs on hundreds of billions of dollars of Chinese products.

The risk is that if the cost pressure for consumer electronic companies further increases on firms selling in the US – especially among consumer electronic companies working within tight profit margins – those costs could be passed on to consumers.

Apple with its iPhone could be in a particularly vulnerable position. A proposed 10 per cent of US tariff on Chinese goods could have a direct impact on Apple products including the iPhone, according to Ming-Chi Kuo, a TF International Securities analyst, and his note to investors last weekend.

The iPhone is famously often branded: ‘Designed by Apple in California. Assembled in China’. As the majority of handsets are manufactured in China by component manufacturers, tariffs could theoretically affect the US price tag.

However, to give the green light to sell its products at a higher price may ultimately be up to Apple, Ming-Chi Kuo thinks. It might be able to absorb most of the additional costs due to tariffs and may opt against passing costs on to end-consumers.

Other Wall Street analysts noted that Apple has already moved a significant percentage of its manufacturing out of China to other territories unaffected by the tariffs. This pre-emptive move – along with Apple’s gargantuan cash reserves – should help the company ride out price fluctuations and pressures.

Another analyst at privately held financial services and investment firm Wedbush told investors that tariffs concerning Apple’s iPhone could drive up the company’s manufacturing costs by up to 3 per cent – or another $30 that would be added to the price tag of the iPhone XS (currently retailing at $999), if Apple does not absorb costs.

Apart from smartphones, economists, retailers and other experts have said that they expect the new tariffs to drive up not only consumer electronics prices, but also toys, shoes, food, other consumer electronics and clothing.

“Our bet is that consumer price inflation will rise slightly,” Tim Quinlan, a Wells senior economist, wrote in a note to investors on Monday.

President Trump tweeted that “based on the historic currency manipulation by China, it is now even more obvious to everyone that Americans are not paying for the Tariffs – they are being paid for compliments of China, and the U.S. is taking in tens of Billions of Dollars!”.

The US still has a choice, though. The US Trade Representative has not yet specified the parameters for the new tariffs. President Trump could either pull back or raise the tariffs to 25 per cent, as originally proposed.

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