iPhone maker Apple may be forced to raise the prices of its flagship phones should the United States go ahead with plans to hike tariffs on the remaining Chinese goods, worth $300 billion.
At the moment, the U.S. has imposed a 25% tariff on %200 billion worth of goods from China and that leaves Apple facing a decision over its phone prices. Wall Street analysts have projected that the U.S. mobile phone company would have to sell the iPhone at a much higher price to offset the expected hike in the cost of parts.
JP Morgan, in an address to its clients on Tuesday, noted that the estimated increase in prices would be somewhere near 14%. The bank said that this would be enough to help Apple absorb “the impact” emanating from the new tariffs.
JP Morgan, however, told its clients that this would depend on whether margin dollars would remain constant for all parties within the supply chain.
According to the bank, the costs the phone maker would incur in the manufacture and sale of its iPhone XS would be about $1,000 when there are no tariffs. However, that cost (and thus retail price) increases to about $1,142 when you factor in a 25% tariff on China-made parts.
Bank of America Merrill Lynch has said that Apple could move its iPhone production to the U.S., with such an exclusive move resulting in a 20% price increase,
The bank also estimates that incremental costs for the iPhone maker in the U.S. are likely to be between 15 to 25%. With this, BAML says that passing the costs to consumers would end up destroying demand.
However, J.P. Morgan believes Apple will decide to absorb the resulting costs due to tariff hikes. According to the firm, it would be okay for the company to incur losses on its earnings than affect consumers by raising iPhone’s prices.
The Apple stock, one of the big five tech stocks under FAANG, has slid 11% over the last two week after trade tensions between the U.S. and China intensified.