Tariffs/Apple/Hon Hai: nothing to crow about

Tariffs/Apple/Hon Hai: nothing to crow about

The problem with buying American or British is that so many great products of both lands are manufactured in China. US president Donald Trump, a weathercock spinning in electoral breezes, has delayed new tariffs on some Chinese-made goods. The respite is more modest than it first appears for Apple and its Asian manufacturing partner Hon Hai.

The reprieve is meant to inspire Yuletide jollity in August by exempting some items Americans buy as Christmas gifts, smartphones and laptops among them. Prices are already steep for Apple’s iPhones and MacBooks, many of them assembled in Shenzhen by Hon Hai, also known as Foxconn. A 10 per cent import tariff will now not be implemented until mid-December.

Investors should focus on products that have received no stay of execution. Accessories for the iPhone, including AirPods, and Apple Watches, will be hit by the 10 per cent levy in about a fortnight. These products, of little account a few years ago, now generate decent sales. Sales of the iPhone fell to less than half of total revenue in the latest quarter, the first time in seven years. Revenues from accessories grew almost 50 per cent.

About half of Apple’s sales are in the Americas, so higher costs are unavoidable. Foxconn has told Apple it can make all iPhones destined for US sale outside China. But at present only a quarter of production is elsewhere. Lifting capacity in other low-cost economies will take far longer than Mr Trump’s mid-December tariff deadline allows.

Foxconn is already struggling with falling profits and a changing leadership. It will have to pass on some of the burden of relocating production.

Tariffs handed on to consumers through higher worldwide prices would threaten the iPhone’s fragile rebound in China’s price-sensitive market. Technological advances are not in Apple’s favour, either. A tenth of new models launched in China last month were next generation 5G phones. IPhones enabled for 5G are not expected for some time.

Apple shares rallied on Christmas cheer. But the stock — and that of Foxconn — will come under further selling pressure.

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