iPhone 11 Price Suggests Trump Trade War Doesn’t Worry Apple

September 11, 2019, 8:36 PM UTC

Apple executives spent nearly two hours on Tuesday discussing new innovations across the iPhone, iPad, and Apple Watch lines. But it was the company’s decision about the price of its new iPhone 11 that may have been most notable—especially when it comes to pending trade tariffs with China.

Apple said the iPhone 11 would start at $699 when it goes on sale September 20—or $50 cheaper than the $749 iPhone XR that it’s replacing.

The price reduction was a surprising move. Apple usually charges the same for successor phones as for their predecessors. And when introducing a big upgrade, the company has often increased prices. In 2017, for instance, Apple unveiled the iPhone X with a starting price of $999—at the time, the company’s most expensive phone ever.

This time, the decision to go with lower prices comes as Apple grapples with new tariffs, starting on December 15, on many of its devices. The Trump administration recently said it would increase tariffs from 10% to 15% on all smartphones produced in China, where Apple’s phones are produced.

Manufacturing costs for iPhones will therefore be higher than previously. And with a lower price on top of the tariffs, Apple’s profits from iPhone 11 will likely be squeezed.

A real tariff problem?

The obvious conclusion is that Apple’s isn’t as concerned about tariffs as some Wall Street investors are. Each mention by Trump or analysts about tariffs sends Apple’s stock sliding.

“Apple studiously ignored the possibility of tariffs,” Forrester analyst Frank Gillett said.

Instead, he said, Apple is using the reduced price to attract a more “mainstream” customer who’s on a budget and who is unwilling to pay $1,000 or more for an iPhone 11 Pro or iPhone 11 Pro Max.

Canalys analyst Vincent Thielke similarly argued that Apple favored selling more phones than earning bigger profits.

“[Apple] has priced its iPhones at what appear to be promotional rates, which can likely stimulate demand in some price-sensitive markets,” he said.

IHS Markit analyst Wayne Lam added: “The modest cut is to serve as a marketing tool to differentiate with the iPhone 11 Pro line. The pricing also helps to quiet consumers on the ever-increasing price of iPhones.”

Cook and Trump

What went into Apple’s calculation is unclear. But President Donald Trump’s notorious unpredictability may be part of the equation. In previous rounds of tariffs, Trump exempted iPhones. But he changed his mind in the latest round, despite Apple CEO Tim Cook’s argument that it would put Apple at a disadvantage against rivals like Samsung, which isn’t subject to the tariffs because it produces its phones in South Korea and Vietnam.

“Tariffs could have a major impact on iPhone pricing, but there are so many variables and uncertainties around them,” said eMarketer principal Yoram Wurmser. “Would phones be exempted as they were in previous rounds? Will Trump give Apple some special dispensation?  Tariffs could blow up the prices of these phones, but it’s just too early to see how they play out.”

Apple’s Tariff Response

Canalys’ Vincent Thielke doesn’t think Apple will increase iPhone 11 prices to offset the tariffs. Instead, he says the problem could be solved in stores.

“Smartphone shoppers will probably not see an iPhone price increase,” Thielke predicted. “Instead, they will encounter fewer promotions in the retail and operator channels on these devices when tariffs are levied.”

Tim Bajarin, an analyst at Creative Strategies, said he was “surprised” by Apple’s prices for the iPhone 11 in light of the tariffs. And he believes Apple must ultimately pass on at least some of the tariff costs to consumers.

“Apple would never pass the full tariff cost to their customers,” Bajarin said. “So the impact on pricing will be determined by how much Apple is willing to cover in tariff costs and how much they feel the customer will have to cover and still keep Apple profitable.”

As IHS Markit analyst Wayne Lam put it, a company as big and profitable as Apple likely didn’t make a bold pricing decision without considering the implications.

“I’m sure Apple has multiple back up plans to work around those tariffs,” he said.

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