Analyst: Apple and America's big internet companies have no reason to fear a Trump trade war with China

Tim Cook Donald Trump


  • The tariffs that President Trump is reportedly threatening to impose on Chinese electronics products has some investors worried about how the big US tech firms may be affected.
  • Investors ought not be overly worried, GBH Insights analyst Daniel Ives said Wednesday in a research note.
  • The FANG companies - Facebook, Amazon, Netflix, and Google - have minimal business in China, so have little at risk, Ives noted.
  • While Apple has greater risk, Ives said it too is likely to emerge largely unscathed.

President Trump's potential plan to target Chinese electronics and other imports with as much as $60 billion in tariffs has investors worried, including those who focus on the tech sector.

But those fears are overblown, at least where they concern the biggest tech names, said Daniel Ives, a financial analyst who focuses on the sector for GBH Insights, in a research note Wednesday. Any tariffs should have "minimal" effect on Apple, the world's largest tech company, and the so-called FANGs - Facebook, Amazon, Netflix, and Google - even if it sparks a retaliation from China, Ives said.

"It's scary headlines," Ives told Business Insider. But when you scrutinize the potential effects on the companies, "the financial ramifications are a lot more de minimis than the scary worries."

The president, prompted by concerns about Chinese companies stealing US intellectual property, is reportedly pushing for a plan to slap tariffs on a range of electronics and telecommunications products made in China. Such a move, on the heels of steel and aluminum tariffs imposed by the President earlier this month, has stoked fears of a larger, cross-Pacific trade war with American tech companies caught in the crossfire.

The Dow Jones Industrial Average fell 249 points on Wednesday, as concerns of of a looming trade war roiled the markets.

Apple in particular would seem to be especially vulnerable. Not only are the iPhone, iPad, and its other major products manufactured in China, but China - together with Hong Kong and Taiwan - has become its third largest regional market around the world.

Of the big tech companies, Apple is indeed the most at risk in a trade war with China, Ives said. The internet-focused FANGs generally do little business in China, in part because Google pulled out of the market years ago and Facebook's service is blocked by the government. But even Apple is unlikely to suffer much as a result of Trump's potential tariffs or any corresponding moves by China, Ives said.

The tariffs would be a rounding error for Apple

The tariffs the administration is considering would likely add about $50 million in costs to what Apple pays to manufacture goods in China each year, Ives estimated. Even if those tariff-related costs doubled, the total effect on Apple would be basically insignificant, he said. Just by comparison, in the holiday quarter alone, Apple spent $54 billion manufacturing, shipping, and distributing its products.

Apple CEO Tim Cook waves as he attends a talk in Beijing October 23, 2014. China Daily/via REUTERS/File Photo

Thomson Reuters

Apple CEO Tim Cook waves as he attends a talk in Beijing in 2014.

"If you look at it in the scheme of things, [$50 million] is a rounding error," Ives said.

The bigger concern for Apple is not the tariffs the Trump administration may impose, but how China may respond. The country could potentially make it difficult or much more costly for Apple to do business. That could be problematic for Apple, considering that the Greater China region accounted for 20% of its total sales and 28% of its operating income last year.

But Ives thinks China will be careful to not harm Apple, even if it does retaliate in a trade war. Under CEO Tim Cook, Apple has gone to great lengths to be on good terms with the Chinese government and has invested billions of dollars into the country, including through its investment in Didi, China's counterpart to Uber. China will likely be loath to destabilize those investments or its relationship with Apple, Ives said.

"When all is said and done, I think the bark's worse than the bite there," he said.

Amazon can absorb any tariff pain

Jeff Bezos

Mark Lennihan/AP

Amazon CEO Jeff Bezos with one of the company's Fire tablets.

Of the FANGs, the one that could see the most effect is Amazon, Ives said. Many of the electronics products it sells through its store are made in China. That includes its Echo smart speakers, which are part of the company's big push into selling its own hardware.

But Amazon's Echo sales are still a relatively small part of its overall business, Ives noted. And at most, the tariffs will likely increase what Amazon pays for the electronics goods it sells by 1% to 2%, he said.

"That's something they could easily pass on or absorb. It's pretty insignificant," Ives said.

He continued: "For now, I view this as more noise than actually having an impact to the bottom line."

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