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The recent escalation in the trade war between the U.S. and China hold significant risks for Apple, according to Credit Suisse analysts. 

The current U.S. tariffs on Chinese goods don't affect Apple's products, and while the proposed tariffs on an additional $300 billion on goods imported from China would, Credit Suisse analyst Matthew Cabral wrote on Tuesday that's he's more concerned about the secondary effects of a trade war on Chinese demand for Apple products.

"While Apple's products largely fall outside the scope of current US tariffs on Chinese goods, we're more concerned with potential 'second derivative' impacts on local demand and implications of a further escalation from here," he wrote. He estimated that for every 5% drop in Greater China sales, Apple investors can expect a roughly $0.15 reduction in EPS.

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Apple (AAPL) shares were up 2.40% on Tuesday, but have fallen about 12% since the first week of May, when U.S.-China trade negotiations fell apart. China plans to jack up tariffs on $60 billion worth of U.S. goods, and President Trump raised tariffs on one-third of Chinese imports from 10% to 25%, accompanied by threats to expand them further and a proposal to slap tariffs on additional goods. The Commerce Department also announced a ban on U.S. firms supplying to Huawei, wreaking havoc on chipmakers and other stocks early this week.

This is all potentially bad news for demand for Apple products as well, wrote Cabral.

Indeed, Apple was hit hard in the fourth quarter by lagging consumer confidence in China, possible rising nationalistic sentiment, trade uncertainty and other macro factors, leading management to slash its guidance based on weak sales in the country. The U.S. ban on Huawei could also make Apple more vulnerable to retaliation in some form or another, Cabral wrote. Apple's issues in China -- its manufacturing base, as well as the source of about 20% of its revenue -- run deeper as well.

"Beyond near-term macro/trade concerns, we see deeper structural issues for Apple in China (aggressive local competition and a narrower ecosystem advantage) that will likely take more than a trade war détente to solve. We don't expect a meaningful turnaround prior to 5G in CY20," he wrote.

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