High prices already led Apple’s iPhone sales to plateau during the typically strong holiday season, and a new round of U.S. tariffs against Chinese-manufactured products are seriously endangering its upcoming revenues, CNBC notes today. At a threatened 25% tariff rate, Apple would need to raise its U.S. prices by roughly 14% to keep margins constant across its suppliers — one of several scenarios that could hurt iPhone sales.
As estimated by analysts at J.P. Morgan, the 14% hike would see the U.S. price of an iPhone XS increase from just under $1,000 to $1,142 to offset new tariff-related expenses. The prices of most other Apple devices would likely be impacted as well, such that the more affordable iPhone XR would jump by over $100 to $855, and the entry-level MacBook Air would climb from $1,199 to $1,369 ahead of the lucrative back to school shopping season.
A much less likely scenario would see Apple move production to the United States. Bank of America suggests that U.S. manufacturing would raise Apple’s costs by 15-25% — 20% if the entire phone was made in the United States — which if passed on to consumers could “lead to demand destruction, in our view.”
By contrast, Morgan expects that Apple will absorb part or all of the tariff-related expense itself — a move that would reduce its typical 38-39% gross margins, albeit only by around 4%. That smaller number would reflect the fraction of Apple’s total sales attributable to U.S. purchases, and likely be understandable by investors as a temporary goodwill measure to satisfy customers during a time of broad economic unease.
Apple’s price issues have been the topic of plenty of discussion over the past six months, as the company has attempted to maintain its U.S. pricing while offering various incentives such as trade-ins and financing to attract more customers. At the same time, the company has slashed its prices in select developing countries, blaming unfavorable currency exchange rates rather than its own high margins for regional demand weaknesses.
While the United States has not yet formally instituted the 25% tariff against China, the formal approval process to implement it began yesterday. If approved, the tariffs could go into effect as early as June 24, several months ahead of Apple’s annual introductions of flagship iPhone, Apple Watch, Mac, and iPad models.