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 consequences were immediate, with Apple leading the decline among tech stocks on April 3. With countries seen as “salvation” now on the tariff list, Apple’s stock fell more than 9%, far exceeding the Nasdaq’s 6% decline.

This sharp drop "evaporated" more than $300 billion in market capitalization of the iPhone giant, marking the worst trading session since March 2020.

Analyst Erik Woodring from the US multinational financial services group Morgan Stanley told CNBC: "When you look at the tariffs targeting countries like Vietnam, India and Thailand, important destinations in Apple's supply chain diversification strategy, you see there is no real way out."

To offset the impact of the tariffs, Apple may be forced to raise prices across its product lines in the US market by about 17% to 18%, according to Woodring's estimates. However, there are still too many unknowns, from how Apple will react, to how China will respond to 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 on April 3 to a request for comment on its plans to respond to Trump's tariffs, nor on whether it would consider raising prices in the United States.

They also declined to comment on any alleged 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 once again seek a tariff exemption, as it did successfully under the 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 records released by Apple in November last year, the majority of its manufacturing operations are still concentrated in China, India, Japan, South Korea, Taiwan and Vietnam. These are also the countries that are 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 US.

"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 from the group 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 specifically 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 overseas. The $500 billion investment in the US that Mr. Trump has touted includes buying components and chips from domestic suppliers, but does not include a commitment to large-scale manufacturing.

Apple has long resisted moving production 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 impossible in the short term. According to expert Dan Ives of the financial services company Wedbush (US), Apple would need at least 3 years and about 30 billion USD to move just 10% of production out of Asia, not to mention the serious disruption that would come with it.

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

Previously, many experts believed that Apple could manage by taking advantage of 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 the new iPhone lineup slated for release 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."