It is widely expected that the upcoming $325B in tariffs on goods imported from China will impact Apple products. We have a different view. We believe that little is known about the specifics and that ultimately Apple products will be spared from any tariff increases. Some additional thoughts:

• The reason we believe Apple will be spared is based on our belief that Trump sees Apple as a symbol of American strength and, separately, he has a favorable relationship with Tim Cook that he is interested in maintaining.
• As a point of reference, Apple products were spared from a China tariff increase in September of 2018.
• If we’re wrong and Apple products are included in the tariffs, we think Apple would bear the increased cost in the near-term (six months). The worst case scenario (all Apple products are impacted by 25% tariff) could then result in a 10% overall earnings decline for those six months. Simple math suggests a 25% haircut to US profits (which represent 43% of total revenue) could mean a roughly 10% decline in earnings. Beyond six months, we expect Apple would share the increased cost with the consumer. However, we stress that this illustrates the worst case scenario, and we believe Apple will be spared from the additional tariffs.
• Further, it’s likely that finished goods (i.e. iPhones in the box) would not be included in the tariffs. If that were the case, there would be very little impact on Apple, as, with the exception of the Mac Pro (less than 1% of rev), all of Apple’s products are assembled overseas.

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