Apple may have just reported yet another record quarter, but there’s a potential dark cloud lurking on the horizon in the form of the impending China trade war.
Not only has Tim Cook been outspoken about China being Apple’s future biggest market, but Apple also relies on China for the majority of its manufacturing. In other words, Apple has a problem — and in this case it’s a problem that could be passed onto you, the customer.
In a regulatory filing made on Wednesday, Apple warned about how a trade battle between China and the U.S. could hurt Apple’s business.
“Tariffs could increase the cost of the Company’s (read: Apple’s) products and the components and raw materials that go into making them,” Apple notes. “These increased costs could adversely impact the gross margin that the Company earns on sales of its products.”
As a result, Apple says it would be forced to make its devices “more expensive for customers,” since it would rather ratchet up the sales cost than absorb it by lowering margins. This is what previously happened in India, when new import charges were placed on the iPhone.
Apple’s worries about tariffs
However, while the success of the $1,000+ iPhone X shows that customers will happily pay a premium for an iPhone, Apple is aware that there is a limit to what customers will spend. In its regulatory filing, it notes how higher prices for iPhones could make Apple products, “less competitive and reduce consumer demand.”
While Apple is a corporation, and not a governmentally-funded nonprofit, that wouldn’t seem to affect anyone other than Apple and its shareholders. But Apple’s status as the world’s biggest taxpaying company would, in turn, mean that generating less cash would mean less money paid in taxes.
Apple is also rightly worried about what trade tariffs could mean in terms of the knock-on effects. Specifically, it notes that it could become a target for other countries wanting to get some measure of revenge for the new charges it faces. This may already be happening to a degree. In China, Apple has recently come under increased scrutiny for its services, which may not be unrelated to the currently political turmoil.
During this week’s earnings call, Tim Cook said that the U.S. tariffs announced so far don’t directly affect Apple products. That could well change as the year goes on, though.