So much for that 10% tax on iPhones

That’s one Apple headwind lifted, at least for 90 days.

To the extent that Wall Street took seriously Trump’s casual threat to impose a 10% tax on iPhones imported from China, the selling pressure on Apple should lift a bit when the markets open on Monday.

Apple will be spared the specter—raised Friday by Morgan Stanley’s Katy Huberty—of three “value destructive” worst-case scenarios for Apple:

  • Relocating final assembly plants out of China and replacing a million Chinese low-wage earners (“largely inconceivable”)
  • Raising the price of already pricy smartphones—by $60 to $160 for the iPhone XS, for example—cutting into unit sales and revenues.
  • Swallowing the tariffs, chopping anywhere from $1 to $2.50 off Apple’s 2019 EPS in Huberty’s estimate.

Apple is spared, for now. According to the White House, the trade negotiators agreed to a 90-day truce. (Ending April 1, Apple’s birthday, for those who care about such things.) Curiously, Xinhua, China’s state-run news agency, makes no mention of the 90-day deadline in its account of the truce.

My take: Has the market already discounted Trump’s negotiating bluster and priced it into the stock? We’ll find out Monday.

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  1. Gregg Thurman said:

    I didn’t see the can being kicked down the street, but I did see an agreement having already been negotiated before Trump and Jinping were to meet in Buenos Aires

    As far as I’m concerned this agreement shows China/Jinping blinking. China stood to lose more than the US had the tariffs been implemented. By negotiating a delay to allow for further negotiations presents Jinping as fighting for Chinese interests (saving face) before caving.

    It shouldn’t be surprising that this announcement was made just before the Asian markets opened. For AAPL, Monday (18 hours after Asian open) and the rest of the week is going to look real good.

    December 2, 2018

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