20 June 2019 | Staff | Bloomberg via LA Times
Apple Inc. urged the Trump administration not to proceed with tariffs of as much as 25% on a new slate of products imported from China, saying it would reduce the tech giant’s contribution to the U.S. economy.
The Cupertino, Calif., company made the plea in a letter to U.S. Trade Representative Robert Lighthizer this week.
Tariffs would affect nearly all major Apple products, including iPhones, iPads, MacBooks, Apple Watches, AirPods and iMacs, the company wrote. It said tariffs would also hurt lower-volume products such as the HomePod speaker, some Beats headphones, wireless routers, the Apple TV box, cases and iPhone replacement parts.
This is the first time Apple has specifically mentioned the iPhone on a list of products that would be affected by tariffs. The smartphone generates about two-thirds of Apple sales and drives the purchase of other devices and services.
Apple is one of the largest job creators in the United States, it said, responsible for more than 2 million positions. The company also said it was the biggest U.S. corporate taxpayer. Apple has pledged to make a direct contribution to the U.S. economy of more than $350 billion over five years and says it’s on track to meet that goal.
The United States and China have said their presidents will meet in Japan next week to relaunch trade talks after a monthlong stalemate.
Apple spent decades building one of the largest supply chains in the world. The company designs and sells most of its products in the United States, but a lot of assembly takes place in China, and Apple imports the finished items. That makes Apple one of the companies most exposed to tariffs. It may be evaluating moving some production out of China to elsewhere in Asia, according to a recent Nikkei report.
Apple’s global supply chain has helped it efficiently pump out hundreds of millions of devices, making the company one of the most profitable in the world. But the approach relies on cheap labor and the relatively free movement of goods between nations. The trade war between the U.S. and China is a threat to this lucrative status quo.
“What has benefited Apple in the past may turn full circle and harm their super-normal margins in the future,” Neil Campling, Mirabaud Securities’ head of technology, media and telecommunications research, wrote in a note to investors Thursday. “While Apple attempts to portray itself as pivoting to a services company the bare fact remains that more than 60% of profit is generated by the iPhone.”
In the past, when the company has been up against local taxes on the sale of products built elsewhere, Apple has relocated production within that country. Apple is now building iPhones in India to avoid a local tax in the region. Several years ago, it took similar measures in Brazil for selling iPhones.
But moving production out of China is not without risk. Apple’s suppliers employ millions of people in China, and the company’s relationship with the government there is partly based on this contribution to the economy. Moving could raise roadblocks to selling iPhones and services such as Apple Music and iCloud in that country.
Last year, Apple told Lighthizer that tariffs could affect AirPods, some Macs and the Apple Watch. The company got a reprieve when the government said it would exempt the Apple Watch from being affected.
In its letter this week to the U.S. government, Apple said the tariffs would weigh on its global competitiveness. It also stressed its effect on the U.S. economy. “The Chinese producers we compete with in global markets do not have a significant presence in the U.S. market, and so would not be impacted by U.S. tariffs,” Apple said.
Apple’s letter was filed during the public comment period for proposed tariffs on about $300 billion in Chinese goods as the United States tries to finalize a deal with China that addresses the trade deficit, allegations of intellectual-property theft and other trade practices.