Trump Tariffs Hit Tech: Apple, Chip Stocks Fall as Tariffs Loom

US-China Trade Tariffs Impact on Tech Industry

As of Tuesday, US President Donald Trump's 10% tariffs on Chinese-made goods have taken effect, targeting electronics ranging from PCs to smartphones. Trump has also hinted at potential tariffs on chips and related products, posing further challenges for the tech industry.

The tariffs are part of Trump's ongoing trade dispute with China, Canada, and Mexico. While he has paused tariffs on Mexico following positive talks with President Claudia Sheinbaum, the tech industry remains vulnerable.

Chinese manufacturing facilities are crucial for producing electronics relied upon by Americans. Companies must now decide how to respond to the 10% tariff. Some may absorb the cost, while others will have no choice but to pass it on to consumers, leading to higher prices for both individual and corporate products.

Should Trump impose tariffs on chips, the cost of these devices could skyrocket further at a time when consumers are already battling inflation. John Vinh, equity research analyst at KeyBanc Capital Markets, highlights the significant impact this would have: "As those prices increase, we think there's probably going to be a negative impact to end demand. And ultimately that's going to flow upstream to all the chip companies."

Chip stocks such as Nvidia (NVDA), AMD (AMD), and Intel (INTC) experienced significant declines in late-afternoon trading on Monday.

Apple's China Exposure

Apple (AAPL) faces significant risk from the initial round of tariffs due to its extensive manufacturing operations in China. Products like the iPhone, iPad, and MacBook Pro will be subject to the 10% tariffs.

Adding 10% to the base price of an iPhone 16 Pro ($999) translates to an additional $99. Similarly, a $1,599 MacBook Pro would incur an extra $159. Apple could potentially shoulder all or part of the tariff, but this would adversely affect profit margins.

According to BofA Global Research analyst Wamsi Mohan, Apple may seek manufacturing partners in other countries to minimize tariff impacts. Mohan estimates that sourcing 80% of products from outside China would result in a $0.05 impact on earnings. However, if only 50% can be outsourced, the cost could rise to $0.07-$0.12, depending on whether Apple adjusts prices.

Apple has collaborated with manufacturing partners in India to establish local production lines for iPhones, providing some flexibility. While navigating these tariffs is manageable for a company of Apple's size, Trump has discussed raising tariffs as high as 60%, which would have far greater consequences.

Tariffs on Chips

While Trump's latest tariffs do not directly target the most advanced chips, he has indicated plans to impose separate duties in the future. This would force chipmakers to increase prices or absorb the cost themselves.

If chip companies raise prices, the burden will be passed on to device partners, including PC manufacturers. These manufacturers would then have the option of absorbing the costs or passing them on to consumers and corporate clients.

For companies like Amazon (AMZN), Google (GOOG, GOOGL), Meta (META), and Microsoft (MSFT), which invest heavily in AI chips, price increases would result in significantly higher expenses for data center development.

Implementing manufacturing facilities to address the tariffs would also be a lengthy process, as constructing semiconductor fabrication plants (fabs) takes years. While companies like TSMC and Samsung are building fabs in the US, they will continue to rely on facilities in other countries.

However, Wedbush analyst Dan Ives believes the near-term risk for chip companies is limited, particularly regarding AI technologies. "Tariffs are not going to dent the AI Revolution trade as we continue to believe even if the tariffs continue for some time (60 days-90 days) there will be exemptions to this policy which likely include Apple products and Nvidia chips," Ives wrote in an investor note.

Nevertheless, the duration of the trade dispute and the likelihood of exemptions remain uncertain, leaving the industry's fate in Trump's hands for the foreseeable future.