How Trump's tariffs could affect Apple

Key Points
  • Bank of America Merrill Lynch and Loup Ventures discussed how new tariffs may affect Apple.
  • BoA says there could be a material impact on earnings, while Loup Ventures doesn't think they'll hit Apple too hard.
  • President Trump thinks Apple should build products in the U.S. instead.
Apple AirPods
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On Monday, Bank of America Merrill Lynch and Loup Ventures published notes discussing how Trump's proposed $200 billion tariffs on China will affect Apple.

The tariffs may force Apple to raise the prices of some of its products in the U.S., including the Apple Watch, AirPods, HomePod and Beats headphones, in order to recoup lost revenue.

Bank of America Merrill Lynch said that a 25 percent tariff "could be materially demand destructive" and estimates that about a third of the $26 billion it earns from those products comes from the United States.

"Every $1bn of demand destruction could impact earnings by ~0.05," the report said, noting that manufacturing in the U.S. "could be an incremental drag to EPS."

Loup Ventures' Gene Munster doesn't see as big of an impact.

"If passed, we believe these tariffs could lower the profitability of Apple Watch and AirPods by 10-20%, resulting in just under a 1% negative impact on Apple's profits in FY19," Munster wrote Monday, suggesting the tariffs will "go away" in just two years.

President Donald Trump seems to be trying to pressure Apple into building more of its products in the U.S., and argued that doing so would alleviate some of the pressure.

"Apple prices may increase because of the massive Tariffs we may be imposing on China - but there is an easy solution where there would be ZERO tax, and indeed a tax incentive," Trump said in a tweet Saturday. "Make your products in the United States instead of China. Start building new plants now. Exciting!"

Read the tweet

Apple on Friday filed a letter discussing its concern with the tariffs.

"It is difficult to see how tariffs that hurt U.S. companies and U.S. consumers will advance the Government's objectives with respect to China's technology policies," Apple said. "We hope, instead, that you will reconsider these measures and work to find other, more effective solutions that leave the U.S. economy and U.S. consumer stronger and healthier than ever before."

Tariffs threaten Apple's China success