Apple Inc. (AAPL) - Get Report shares traded near a two-month low Monday as investors worried that fresh tariffs on China-made imports into the United States will either raise price or depress earnings for the world's biggest tech company.
Shares were also hit by a decision from the U.S. Supreme Court that allowed a class-action lawsuit against the company in a long-running dispute linked to allegations that its App Store monopolizes the market for iPhone software to go ahead.
Morgan Stanley analyst Katy Huberty suggested the newest round of tariffs, which increase the cost of goods from everything from furniture and toys to washing machines and consumer electronics, will boost the price of an iPhone by $160. Apple will then have to chose whether to pass that increase onto consumers in its biggest market or swallow the costs and slash its 2020 earnings forecast.
"Apple has one of the most significant exposures to Chinese exports to the U.S, given final assembly for many of its consumer devices is located in China," Huberty wrote, adding that shifting production from the world's second-largest economy would be "largely inconceivable and would require heavy investment in robotics and automation" from Apple given that China is "one of the only countries that can provide such a large and low-cost labor force with the expertise in manufacturing and tooling that is required".
Apple shares were marked 6% lower Monday to change hands at a six week low of $185.39 each, a move that would extend the stock's decline to around 12.5% since President Donald Trump first threatened to increase tariffs on China-made goods to 25% on May 5.
Data from the International Trade Center shows that $45 billion worth of mobile phones were imported from China into the United States last year, and Trump himself raised the issue of Apple-focused tariffs back in September.
A recent analysis from IHS Markit estimated that the factory cost of an iPhone 7, which is assembled in China but uses components from various countries including South Korea, Japan and Taiwan, is about $237, a figure that is then used by U.S. customs officials when they are calculating trade activity with China.
However, the U.S. contribution to the construction of an iPhone is around $69, compared to the China-based contribution of around $8.50, meaning tariffs based on the import of an iPhone would hit both U.S. companies and U.S. consumers harder than they would those in China.
Cook himself described the public consultation process for the proposed tariffs on $200 billion in China-made goods "tedious" because, he said, "you not only have to analyze the revenue products, which are a bit more straightforward to analyze, but you also have to analyze the purchases that you're making through other companies that are not related to revenue."
TheStreet's founder, Jim Cramer, is slightly more positive on the impact of China tariffs on U.S. companies, given the lead time they have hand in preparing for last week's decision from the White House.
"The companies could really be crushed by the trade war are really down to the 'Big Three', and that's ABC: Apple, Boeing (BA) - Get Report and Caterpillar (CAT) - Get Report ," Cramer, told CNBC's Mad Money audience Friday. "But Apple's been one of the best performers of the year, gaining 25%, Boeing's up 10% for 2019 even with 737 MAX issue and Caterpillar's up 3%."
"All these stocks are telling me that our companies are far more ready for tariffs and the trade war than most people think ... as are our portfolio managers. Nearly everyone in the business community saw this coming and made the necessary adjustments."
"You know who's been caught off guard?," Cramer asked "The pundits. And that's why the market (was able) to rally on what could have been a really ugly (Friday)."