Apple supply chain 'shaken', stock falls to record low before Donald Trump's new tariffs?

In recent years, Apple has begun shifting its supply chain out of China, a strategy aimed at diversifying production and reducing dependence on a single market.

"Made in India" iPhones are available in the US, AirPods come from Vietnam and MacBook desktops are assembled in Malaysia.

This is a strategic move by Apple to respond to a series of previous challenges, from tariffs during the Trump administration, supply chain disruptions due to the COVID-19 pandemic, to the global chip shortage, all of which have exposed the risks of placing almost all of its production in China.

That strategy seemed like the right move, until President Donald Trump's recent wave of tit-for-tat tariffs suddenly expanded to countries Apple relies on, like India, Vietnam, and Malaysia.

The fallout was immediate, with Apple leading the tech sector’s decline on April 3. With countries seen as “salvation” now on the tariff list, Apple’s stock fell more than 9%, far outpacing the Nasdaq’s 6% decline.

The sharp drop wiped out more than $300 billion in market capitalization from the iPhone giant, marking its worst trading session since March 2020.

"When you look at the tariffs targeting countries like Vietnam, India and Thailand, which are key to Apple's supply chain diversification strategy, there's really no way out," analyst Erik Woodring from Morgan Stanley told CNBC.

To offset the impact of the tariffs, Apple may be forced to raise prices across its product lines in the US by about 17% to 18%, Woodring estimates. But there are still many unknowns, from how Apple will react to how China will retaliate against the US.

“In an environment like this, you have to consider the worst-case scenario,” he said. “And it seems like both sides in this geopolitical rivalry are becoming increasingly assertive.”

Apple did not respond to a request for comment on April 3 about its plans to respond to Trump’s tariffs, nor whether it would consider raising prices in the United States.

They also declined to comment on any reported meetings between CEO Tim Cook and Mr Trump this year, if any, or what discussions took place.

Previously, in a financial reporting meeting in January this year, Tim Cook was cautious: "We are monitoring the situation, and currently have nothing further to share."

Apple could again seek a tariff exemption, as it did successfully under the previous Trump administration. But if it fails this time, the new wave of tariffs would directly threaten its core business in the world’s largest consumer market.

According to financial filings released by Apple last November, the majority of its manufacturing operations are still concentrated in China, India, Japan, South Korea, Taiwan and Vietnam – countries that are also on the list of countries that have been heavily impacted by the new tariffs recently announced by former President Donald Trump.

Apple has warned investors that new tariffs could disrupt its supply chain, forcing it to raise retail prices or even stop selling certain products in the United States.

“The impact could be particularly severe if these measures affect markets that generate a significant portion of our revenue and/or are a critical link in our supply chain,” the company said in the report.

The list of key suppliers, which account for 98% of Apple's total spending on materials, manufacturing and assembly, is largely made up of countries facing new tariffs, including Vietnam: 46%, China: 54% (up from 20%), Taiwan: 32%, South Korea: 25%, India: 26%, Japan and Malaysia: 24%.

Mr. Trump said the goal of the tax policy is to "bring manufacturing back to America," even citing Apple by name in a statement: "They will build a factory here."

While Apple has assembled its high-end Mac Pro in Texas, the bulk of its manufacturing is still done overseas. The $500 billion investment in the United States that Mr. Trump has touted includes buying components and chips from domestic suppliers, but it does not include a commitment to large-scale manufacturing.

Apple has long resisted moving production back to the US because of costs and operational constraints. As early as 2011, the late CEO Steve Jobs told President Barack Obama, “Those jobs are not coming back.”

Analysts agree that shifting the supply chain to the US is not feasible in the short term. According to Dan Ives of the US financial services company Wedbush, it would take Apple at least three years and about $30 billion to move just 10% of its production out of Asia, not to mention the serious disruptions that would come with it.

For investors, the top concern now is how will the new tax rate affect Apple's profits?

Previously, many experts believed that Apple could get by by utilizing production facilities outside of China. However, when "plan B" such as Vietnam, India or Malaysia are also subject to tariffs, all calculations need to be redone from scratch.

Apple, which is notorious for rarely raising prices mid-cycle, will likely be weighing whether to keep prices steady or sacrifice profit margins. With a new iPhone lineup expected to launch in September, any decision now will directly impact fourth-quarter financial expectations.

Analyst Angelo Zino from financial research and analysis company CFRA Research (USA) commented: "There is no doubt that if tariffs are maintained for a long time, they will put pressure on Apple's fundamentals, especially profit margins and expected profits."