Trump spares Apple Watch, AirPods from fresh US$200 billion tariffs as trade war escalates with China

The California-based tech firm has lobbied for the US to keep its products and components off the list of US$200 billion in Chinese-made items facing new US tariffs

PUBLISHED : Tuesday, 18 September, 2018, 12:30pm
UPDATED : Wednesday, 19 September, 2018, 8:34am

Apple’s smartwatches and wireless earphones were among the items that were spared as the US unveiled its updated list of tariffs on US$200 billion of Chinese-made products as US President Donald Trump escalated a trade war with China on Tuesday.

The Cupertino, California-based tech giant lobbied the Trump administration to not include more than a dozen categories of products and components in its proposed list of tariffs. These included its Apple Watch, AirPods and components for its various devices.

Trump hits China with new US$200 billion tariff attack

With its latest list, Trump has now targeted more than half of the goods exported to the US annually from China, as he seeks to reduce a trade deficit between the two countries and counter what he claims are unfair trade practices by the Chinese government, including forced sharing of technology. China exported US$505 billion of products to the US last year.

“Tariffs increase the cost of our US operations, divert our resources, and disadvantage Apple compared to foreign competitors,” the company said in a letter to the Office of the United States Trade Representative this month. “More broadly, tariffs will lead to higher US consumer prices, lower overall US economic growth, and other unintended economic consequences. As a result, tariffs will ultimately reduce the economic benefit we generate for the United States.”

Apple, which manufactures many of its products in China through Taiwan’s Foxconn Technologies, noted in its filing that it is the largest corporate taxpayer to the US government and pays billions of dollars a year in local taxes.

An Apple representative did not immediately respond to a request for comment on Tuesday.

Apple chief executive Tim Cook has pressed the administration to rethink the tariffs because of their impact on American consumers. He said in July that he was “optimistic” that the US and China would come to a resolution.

“I can’t predict the future, but I am optimistic that the countries will get through this,” Cook said on a conference call in July. “And we are hoping that calm heads prevail.”

In unveiling the updated list of targeted items on Tuesday, the US Trade Representative’s office said that smartwatches, Bluetooth devices, bicycle helmets and car seats were among the items that were removed following weeks of public hearings.

The Trump administration has ramped up its rhetoric over the summer, previously imposing tariffs of 25 per cent on US$50 billion of Chinese-made products.

China ‘won’t just play defence as US trade war escalates’

The latest list imposes 10 per cent tariffs on another US$200 billion of goods later this month, which will increase to 25 per cent on January 1.

Earlier this month, Trump urged Apple to manufacture more of its products in the US if it wanted to avoid the tariffs.

“Apple prices may increase because of the massive Tariffs we may be imposing on China – but there is an easy solution where there would be ZERO tax, and indeed a tax incentive. Make your products in the United States instead of China. Start building new plants now. Exciting!” Trump said in a tweet on September 8.

In crafting its tariffs, the US government has largely tried to avoid items that would directly impact US consumers.

For example, smartphones, such as Apple’s iPhone, accounted for the largest category of goods shipped to the US in terms of value last year, but have not been part of the tariff discussions so far.

In some cases, the US has targeted items that account for little or no trade between the two countries, such as orange marmalade.

However, Trump has threatened recently to potentially target all items exported from China if the Chinese government retaliates.

Last month, Beijing announced plans to place retaliatory tariffs on US$60 billion of American products.

The latest tariff list from the US however did not spare Apple products including its Magic Mouse, Trackpad, Apple Pencil, as well as adaptors, cables and leather covers for its products.

Wayne Lam, an analyst with IHS Markit, said that the tariffs that will impact some Apple products will have a “minimal effect” on the company’s business.

“Commodity accessory parts tend to have a large built in gross margin and a lower overall cost,” Lam said. “Apple should be able to either absorb that cost or just pass that increase to the consumer.”

Meanwhile, shares of companies that supply parts to Apple were hit in morning trading in Hong Kong. Handset lens maker Sunny Optical Technology (Group) lost 3.2 per cent to HK$88.05 at the midday close. FIT Hon Teng better known as Foxconn fell 1.8 per cent to HK$3.63 and AAC Technologies Holdings lost 1.9 per cent to HK$76.05.