President Trump finally seems to acknowledge how the US-China trade war could impact tech giant Apple (AAPL). Trump met with Apple CEO Tim Cook during a dinner at a golf club in Bedminster, New Jersey.

President Trump discussed Apple

According to ABC News, President Trump said that Cook “made a very compelling argument” about how tariffs would impact Apple’s competitive position against Samsung (SSNLF). President Trump told reporters, “I’m thinking about it.” According to CNET, President Trump indicated that paying tariffs would hurt the company. Since Samsung is based in South Korea, it isn’t subject to tariffs.

Samsung has a diversified manufacturing base including South Korea, Vietnam, and India. The company has been reducing its production in China.

President Trump’s meeting with Cook seemed to be one of the priorities on his mind, according to a tweet on August 16. In the tweet, President Trump also expressed his delight about Apple’s decision to invest in the US. On August 15, the company announced that it was on track to contribute $350 billion to the US economy by 2023. Also, the company plans to create 20,000 new jobs in the US by 2023.

How the trade war could impact Apple

Initially, the 10% tariff announced on August 1 applied to a list of $300 billion of imports including electronics, clothing, toys, and footwear. The announcement dragged down Apple stock by 2.2% on August 1 and pulled down the broader market.

However, on August 13, the US Trade Representative announced a delay in implementing the 10% tariff on certain items from September 1–December 15. President Trump made the decision to ensure that tariffs don’t have a negative impact on the holiday shopping season. The delayed tariffs impact cell phones, laptops, computer monitors, and some clothing and footwear items. The news gave Apple some relief. However, the delay doesn’t apply to certain products like Apple Watches and AirPods.

For most of Apple’s products, the assembly takes place in China. The tariffs would have a negative impact on most of the company’s major products including the iPhone and iPad. In a letter in June, Apple urged the US Trade Representative not to proceed with the tariffs. The company said that tariffs would impact its economic contribution. The tariffs would impact Apple’s global competitiveness. There are Chinese producers who compete globally with the company. Since they don’t have a significant presence in the US, the tariffs wouldn’t impact the companies. Also, the tariffs wouldn’t impact non-US producers like Samsung.

In July, President Trump tweeted that Apple’s Mac Pro wouldn’t receive a tariff waiver for the parts manufactured in China. President Trump’s statement followed his dinner with Cook, which indicates a favorable change in his stance.

Competitive position

The continued decline in iPhone revenues—Apple’s largest top-line source—has already put the company under pressure. The US-China trade war will likely drag down the company’s business. Some analysts think that Apple will absorb higher costs. Others analysts think that the company will pass the costs to customers by increasing the prices.

Apple has a premium brand positioning in several emerging markets. Another increase in the price would likely impact the company’s sales. Also, an escalation in the US-China trade war might cause Chinese consumers to prefer local brands like Huawei over Apple.

Apple iPhone is already losing ground to lower-priced competitors in China. A report by Canalys indicated that Apple’s smartphone shipments in China fell 14% in the second quarter. In contrast, Huawei was the market leader in the Chinese smartphone market with a 31% rise in the second-quarter shipments. Apple relies on its services and wearables business to mitigate the impact of lower iPhone sales.

Stock movement 

Recently, the US-China trade war impacted Apple’s stock movement. The stock has fallen about 3.0% since the 10% tariffs were announced. As of August 16, Apple stock has risen 30.9% on a YTD (year-to-date) basis. The stock has outperformed the 15.2%, 11.0%, and 19.0% YTD rise in the S&P 500, Dow Jones, and Nasdaq Composite, respectively.

The US-China trade war will likely continue to have a significant influence on Apple stock. Any favorable decision by President Trump regarding the tariffs would boost the stock. However, another escalation in the trade war would be a significant headwind for the stock.

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