Dive Brief:
- Apple and Nintendo both have plans to shift some production from China to Southeast Asia to reduce exposure to the fourth proposed list of China tariffs, currently set to be approved mid-June. This list could heavily impact tech companies dependent on cheap manufacturing, raw materials, components, and hardware coming from China.
- "We are totally capable of dealing with Apple’s needs to move production lines if they have any," Young-Way Liu, the head of Foxconn Technology Group’s semiconductor business group, said during an investor meeting. Foxconn, a Taiwanese manufacturer that builds Apple's iPhones in China, has plants across the globe and sought to calm investor fears saying its manufacturing capacity outside of China would be expanded to meet customer needs if necessary.
- Nintendo, set to launch the latest update to its Switch console later this year, has already started production in Southeast Asia, according to a Wall Street Journal report, though the bulk of its manufacturing remains in China.
Dive Insight:
The Consumer Technology Association (CTA) estimates the total technology imports affected by the proposed tranche four tariffs will be "more than half" of the $300 billion total currently under consideration for mid-June.
Apple would need to increase prices about "14% to absorb the impact of the 25% tariff and keep margins constant for all players in the supply chain,"J.P. Morgan said in a note to clients. The analysts estimated the price of an iPhone Xs would increase from $1,000 to $1,142 in this case.
Due to Apple's significant cash on hand, analysts say it is unlikely the company would pass this full cost on directly to consumers, and shifting production locations to reduce tariff exposure could limit tariff-induced price increases in the long term.
That said, President Trump reiterated Monday his administration is prepared to levy tariffs on an additional $300 billion worth of imports effective immediately if Chinese President Xi Jinping does not attend the upcoming G20 summit in Japan later this month and agree to negotiate. Thus far, Xi is expected to attend the G20, though no tariff negotiations between the two governments have been announced.
