This is an audio transcript of the Behind the Money podcast episode: ‘Apple navigates Trump’s tariffs’
Michela Tindera
All right, Michael, now you cover Apple here at the FT, so how would you describe, right now, how the company is doing?
Michael Acton
Well, it’s pretty dire. They’re in a sort of weird transition period of waiting to see the full impact of the Trump tariffs. And we saw just in the day after US President Donald Trump announced these reciprocal tariffs, $300bn wiped off Apple’s market valuation.
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So just like all of the biggest US tech companies and indeed the market more broadly, they really need to figure out what steps they need to take next to mitigate the impact of this really sort of historic tariff hike that’s come from the White House.
Michela Tindera
Last week, on what he dubbed ‘liberation day’, US President Donald Trump unveiled tariffs of more than 40 per cent on some of America’s biggest trading partners. The news sent markets into a tailspin, and some of the stocks hammered by this include the American tech companies known as the Magnificent Seven.
Today, on Behind the Money, we’re looking into how Apple — one of the companies hit hardest — is navigating this. And what this says about how tough these tariffs could be on tech companies.
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I’m joined today by the FT’s San Francisco correspondent, Michael Acton. Michael spends a lot of his time reporting and writing about Nvidia and Apple. Hey, Michael, welcome to the show.
Michael Acton
Hey, thanks for having me.
Michela Tindera
Sure thing. So we’re having this conversation on April 7th, just a few days after Trump announced this stunning slate of tariffs. So maybe to start, just how are things for you in this post-liberation day world that we’re living in right now?
Michael Acton
Yeah, I guess you could say I’m sort of living minute to minute. We’re all just watching the shares tumbling as we record this. It’s a pretty extraordinary moment in history to be covering this sector.
Michela Tindera
Yeah, completely. And that’s why I wanted to talk with you, since you cover Nvidia and Apple, and they’re both part of the Mag7, which, reminder, includes those two companies, as well as Alphabet, Amazon, Meta, Microsoft and Tesla. Now, these companies’ successes have been driving the market up for so long now, why are they, in particular, facing losses in this moment?
Michael Acton
So yeah, all of these companies which have been responsible for around half of the gains on the S&P 500 last year with the Mag7, they’re all exposed in different ways to these tariffs. And it, of course, means investors then call into question the earnings guidance these companies have made in the past and it makes them revise their expectations.
Michela Tindera
Now, one of the worst performers within the Mag7 group has been Apple. The company had its worst market cap fall on record last week. So why is Apple stock experiencing the effects of this tariff news so acutely?
Michael Acton
So I think it’s fair to say that of all of these companies, Apple is perhaps the most exposed to tariffs. The reason being that it’s spent the best part of 20 years building a very complex supply chain, which is mostly based in China and south-east Asia. There are no iPhones currently made in the US, and that’s something that President Trump has sort of implied he would like to change. He wants to shift manufacturing back to the US, but that’s not something that happens overnight.
Apple’s seeing potentially tens of billions of dollars wiped off of its profits in the short term as it has to deal with the impact of these extremely high tariffs. I mean, we’re looking at 50 per cent plus tariffs on China. Trump’s also threatened even higher tariffs on China. These things all play into the final price of an end device and ultimately Apple’s bottom line.
Michela Tindera
Mm, that’s right. Now, we’ve discussed Apple’s heavy reliance on China on the show before, and Michael, you even just a couple of months ago reported on how Apple’s been slowly trying to shift some of its supply chain over into countries in south-east Asia. So what role might that play with these new tariffs that were just announced?
Michael Acton
Yeah, so one of the thoughts before these tariffs was that Apple could hedge its bets by shifting more and more manufacturing to places like India and Vietnam. A lot of MacBooks, for example, are now built in Vietnam for the US market. Of course, Trump’s reciprocal tariffs are applying to whole sections of the world, and that includes India and Vietnam. They have not escaped this backlash from Trump. And so the rationale for diversifying the manufacturing chains to elsewhere in south-east Asia sort of drops away when you see the tariff impact is actually gonna hit all of them and not just China.
Michela Tindera
Right. And some of those tariffs have been set at over 20 or even 40 per cent, I believe. But beyond that, the thing I’m thinking about here is Apple CEO, Tim Cook. You know, he’s really done a lot to get into President Trump’s good graces over the years. So he must be somewhat disappointed by all this news. What do you think?
Michael Acton
They’re kind of an odd couple, right? I mean, they’re kind of diametrically opposed in their sort of most fundamental beliefs. Tim Cook is sort of an avowed progressive, at least on social issues. They’re not a natural pairing, but Cook’s done a very good job of courting Trump over the years. We know that he calls him up from time to time and really sort of gee him up in terms of, for instance, US companies facing tech regulation in Europe. He loves to talk about that with Trump. And in fact, it seems like Trump actually quite enjoys the fact that he has the ear of, you know, one of the most powerful tech CEOs.
Michela Tindera
Right, so don’t you think Cook’s feeling a bit betrayed by these announcements then?
Michael Acton
It’s very hard to tell exactly what Tim Cook thinks. Apple is an intensely secretive company and he’s never gonna put his head over the parapet and openly criticise Trump. I think that’s fair to say. It’s been sort of carefully staged managed by Cook and he has avoided really antagonising Trump in any major way, you know, compare him for example, to Mark Zuckerberg or Jeff Bezos when he was Amazon CEO.
You know, these people have full on run ins with Trump where he was very confrontational with them. And Cook has managed to avoid that. He is kind of a consummate diplomat. I think it’s also fair to say from the track record with what happened during Trump’s first administration that he thinks that Trump is someone who is open to doing a deal and that if you offer him something, you will get something in return.
Michela Tindera
Yeah, tell me more about that. What happened in the first administration with the tariffs that Trump was imposing then, I think back in 2019? How exactly did Cook manage that and what did he end up getting from Trump then?
Michael Acton
So Cook took a very canny approach and Trump himself spoke on record about how Cook convinced him to exempt Apple from tariffs first time around.
Donald Trump voice clip
And Tim was talking to me about tariffs. And, you know, one of the things that he made a good case is that Samsung is their number-one competitor, and Samsung is not paying tariffs because they’re based in South Korea. And it’s tough for Apple to pay tariffs if they’re competing with a very good company that’s not.
Michael Acton
He essentially made the point that Apple’s biggest smartphone competitor is Samsung. And Samsung’s manufacturing operations are primarily in South Korea and Vietnam. And if Apple were hit with these China tariffs, it would put them at a competitive disadvantage. And then Cook has this point that, you know, Apple is an iconic American company, and its success is tied to America’s success. And so Trump said that he was convinced by that.
Cook also took the approach of announcing a multi-billion-dollar investment plan for the US. When you break down these figures, you can question just how meaningful some of these commitments are, but ultimately these are sort of big headline numbers that Trump likes. He likes to see a multi-billion-dollar commitment from a US company that he can point to and say, look, my policies are working.
Michela Tindera
Right, and so that’s sort of similar to what we were hearing in Trump’s quote-unquote liberation day speech last week in the Rose Garden. He was mentioning some stuff about big tech companies — including Apple — that had said they’d be investing in the US.
Donald Trump voice clip
Here is just a short list of some of the companies that have already announced and committed to investment. And this is a company that built its factories and its plants in China — Apple is going to spend $500bn. They never spent money like that here. They’re gonna build their plants here.
Michela Tindera
So, I mean, could that be the bargaining chip that Cook needs to convince Trump to change his mind? Do you think Apple will get any exceptions before the so-called reciprocal tariffs go into effect on the day this episode comes out, April 9th?
Michael Acton
Uh, it’s very difficult to say at this stage. I mean, things are moving so quickly right now. There is a chance Apple has in the past, for instance, come out with sort of profit warnings, like official statements for investors saying this is gonna have a material impact on our earnings and they haven’t done that yet.
I think it’s a sort of wait-and-see period. I wouldn’t rule Tim Cook out at this stage, but we are dealing with a different Trump. This is Trump II, this is not Trump I. This is the Trump that, you know, talks about annexing Canada and seizing Greenland and berates US allies in public in the Oval Office. It’s a much more aggressive administration than the first time around, willing to rip up norms. And the idea that Trump would put a pause on his overall plan to roll back decades of US openness in trade for the sake of Apple, it’s now more questionable.
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Michela Tindera
So perhaps there is a small chance that Apple could get a lifeline from Trump at the eleventh hour. But if that doesn’t happen, that puts Tim Cook in a tough spot and Apple could be at a real crossroads navigating this new tariff environment. So Michael, what are their options?
Michael Acton
There’s a couple of options, neither of them very good. One is that Apple starts to hike prices for its products. It’s tried very hard over the years to, at least for the baseline price of an iPhone in the US to not push it above a thousand dollars. That’s the kind of psychological barrier for customers to cross. Would they be willing to spend another couple of hundred dollars on it? We’re seeing lots of very speculative reports out there about the iPhone is gonna now cost XYZ.
Michela Tindera
OK, so they could raise their prices. But that seems like a tricky thing to pull off if there are fears of a possible recession. So walk me through Apple’s other option.
Michael Acton
So the other option is that they just absorb some of these costs. One of the reasons Apple shares have been so attractive to investors for so long is because they have very strong profits. According to a calculation done by Morgan Stanley last week, the hit to Apple’s earnings is gonna be something in the range of $33bn a year from these tariffs.
Michela Tindera
Wow!
Michael Acton
So that’s immediately gonna evaporate a huge part of that, but they do have the ability to absorb some of this.
Michela Tindera
Yeah, how do they have that ability?
Michael Acton
Well, it’s a case of just sort of taking the medicine, as Trump puts it. At a certain point, the company is still technically profitable even if it shaves, you know, 25 per cent off their profits, it's still an enormously profitable company. They’re also sitting on a huge cash pile. So there are ways that it can mitigate this. And then finally, that, you know, they can also put pressure on all of their suppliers.
I mean, at the end of the day, Apple sits at the top of a huge ecosystem of companies like Foxconn that operates the iPhone factories in China. Put pressure on them to bring prices down. There are things like potentially creative accounting techniques they could use to try and mitigate the direct impact of the tariffs on the products. But it’s a really tricky scenario for Tim Cook to navigate now.
Michela Tindera
Yeah, so between these two not-so-great options — either pushing up the price for customers buying an iPhone or absorbing the cost for now and maybe pressuring suppliers to cut their prices — which do you think is the more likely way that things will go?
Michael Acton
I think it’s likely that there’s going to be a blend of these things. So rather than just choosing one or the other option, Apple will find ways to kind of cut corners on both sides.
Michela Tindera
OK, so let’s say that once these tariffs do fully go into effect, that a global trade war really heats up. Even in the case of Cook potentially getting a carve-out for some portion of the Apple supply chain, what are some other possible risks that Apple faces in this new global trade order?
Michael Acton
So Apple — uniquely among the biggest US tech companies — has this dependency on China and it’s not just the manufacturing and the trade relationship, but China is also an absolutely critical market for Apple. And it’s seeing its market share in China being eroded somewhat by local companies, which the Chinese state has kind of thrown its weight behind. So there are all sorts of ways that Apple is extremely reliant and dependent on the goodwill of the Chinese government to help maintain its position in the market there. Those things can be taken away.
Michela Tindera
Are there any other parts of the world that could cause pain for Apple additionally?
Michael Acton
So Europe has a number of levers it can use against US tech companies in retaliation here. And the EU is, at the moment, mulling the use of this so-called bazooka. It’s a sort of nuclear option for them to really crack down on services revenue of tech giants. So it’s very hard to say exactly what the impact would be, but Apple would be one of several US companies which obviously have a really big services business. They have the App Store, they have Apple Pay. In fact, that’s a really growing part of their revenue stream is their services business.
And so, you know, they, like many other companies, are sort of exposed to that. And then the other piece of this is that the Trump administration has been extremely aggressive about the EU’s Digital Markets Act regulation and its ability to find companies like Apple substantial sums of money, sort of 10 per cent of annual turnover for, you know, alleged violations of that law, which is aimed to sort of break open their sort of market power. The EU has been fairly hesitant about using the full extent of that so far, partly because of these anxieties about tariffs from the US as a sort of retaliation. But if we head into a full-scale trade war, you know, the gloves are off.
Michela Tindera
So Michael, what will you be watching for with Apple just in the coming, let’s keep it pretty short-term here, coming week?
Michael Acton
We’ll be looking for any sort of emergency notification that Apple gives to investors that there’s gonna be a very substantial material impact on revenue. We’ll be looking for any last-minute deal being clinched with the Trump administration to get an exemption from those tariffs. And we’ll ultimately be looking to see if there’s any signs that the company is indeed gonna push up prices for consumers.
Michela Tindera
All right, so that’s what you’ll be watching for in the near term. Now, taking a longer view, based on the struggles that we’ve talked about with Apple, do you see the company being left behind among the Mag7 group? Or do you think the group on the whole is gonna struggle in this new era of tariffs?
Michael Acton
So leaving aside the supply chain issues that Apple’s facing, this is coming at a really bad time for the company more generally. There’s a sort of general anxiety around whether the company is at the cutting edge of innovation any more. So the Vision Pro launch was not a tremendous success, and now there’s been this sort of slow rollout of the Apple Intelligence AI features, which has seen setbacks.
So, beyond that, across the Mag7, the story of the last year has really been about this unprecedented spending spree on the infrastructure behind artificial intelligence. And we’d already seen reports about Microsoft potentially rowing back from some of its data centre commitments. This will obviously impact Nvidia, which also relies on China as quite a large market still for its chips, even though its most high-end chips are banned there. So they’re all kind of interconnected and the tariffs are likely to impact that kind of bubble of enthusiasm around AI, which we’ve already seen investors getting a little jittery about in recent weeks and months. It’s a very complicated global supply chain, which is very sensitive to potential tariff impacts.
Michela Tindera
Well, Michael, thanks for being here.
Michael Acton
Thanks so much.
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Michela Tindera
A quick note, as Michael mentioned when we talked on Monday, news has been breaking at a near minute-to-minute basis. Since we had this conversation, Apple’s stock has fallen even further. It’s now lost almost a quarter of its value. And tariffs on China appear to only be going up. The White House said Chinese goods entering the US will face duties of more than 104 per cent starting today.
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Behind the Money is hosted by me, Michaela Tindera. It’s produced by me, Saffeya Ahmed and Katya Kumkova. Sound design and mixing by Sam Giovinco and Joseph Salcedo. Original music is by Hannis Brown. Topher Forhecz is our executive producer. Cheryl Brumley is the global head of audio. Thanks for listening. See you next week.
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