In light of all the threats Donald Trump has made in regards to increasing import tariffs on Chinese-made goods, shares of Apple have been particularly volatile as of late. In early May, for example, Apple shares were trading at around $211. Less than four weeks later, amid ongoing concerns regarding China, Apple shares dropped all the way down to $173. Apple’s stock has since rebounded, but concerns about China remain.
Tim Cook, meanwhile, has publicly said that he’s not worried about an escalating trade war with China, telling CBS News last week: “The Chinese have not targeted Apple at all, and I don’t anticipate that happening, to be honest.”
On a related note, it appears that Foxconn, Apple’s top manufacturing partner, has already been preparing for a worst-case scenario and is seemingly capable of manufacturing new iPhones outside of China.
During an investor meeting earlier today, Foxconn executive Young Liu (via Bloomberg) relayed that the company shouldn’t have any problem meeting Apple’s production needs in any type of political environment.
“Twenty-five percent of our production capacity is outside of China and we can help Apple respond to its needs in the U.S. market,” said Liu, adding that investments are now being made in India for Apple. “We have enough capacity to meet Apple’s demand.”
Apple has not given Hon Hai instructions to move production out of China, but it is capable of moving lines elsewhere according to customers’ needs, Liu added. The company will respond swiftly and rely on localized manufacturing in response to the trade war, just as it foresaw the need to build a base in the U.S. state of Wisconsin two years ago, he said.
The news should be particularly encouraging given the alternative scenario which would likely see Apple having to bear the brunt of a more costly iPhone. Just a few weeks ago, J.P. Morgan indicated that Trump’s 25% tariff would result in an iPhone that’s 14% more expensive. Assuming that Apple wouldn’t pass on the added cost to consumers — which is a fair assumption — J.P. Morgan anticipates that Apple’s gross margins would fall by 4% and that the company, as a result, would see a discernible drop in earnings.