The Tariff Storm Hits International Trade, Causing Chaos

 

The tariff storm hits international trade, causing chaos

 

Faced with Trump's indiscriminate attack on tariffs, Apple, the world's most valuable publicly traded company, is facing a difficult choice: whether to absorb the cost of tariffs on its own or raise prices to pass it on to consumers. In fact, many companies like Apple are also like this. Worries about rising manufacturing costs, supply chain disruptions, and countermeasures from other countries... 'Equivalent tariffs' will impact various industries in the United States. From cars and mobile phones to clothing and daily necessities, Trump's "tariff bullets" may ultimately hit ordinary people in the United States.

 

 

Supply chain: Costs forced to increase

 

After US President Trump announced the "reciprocal tariffs" plan, Apple's stock price suffered heavy losses for two consecutive trading days. According to Bloomberg, currently 90% of Apple's phones are assembled in China, which means that Apple's tariffs will increase significantly in the future.

 

During Trump's first term, Apple began to promote supply chain diversification, including transferring some phone and headphone production to India, transferring some headphone, watch, and computer production to Vietnam, and adding computer product production lines in Malaysia and Thailand.

 

But the Trump administration's plan to impose high "equivalent tariffs" on Southeast Asian countries will undoubtedly severely damage Apple's supply chain. According to the tariff list, the United States will impose "equivalent tariffs" of over 30% on multiple countries such as Cambodia, Vietnam, and Thailand, which are important links in the global supply chain and face significant impacts.

 

Mark Gurman, a technology journalist who has been studying Apple's dynamics for a long time, believes that under the latest tariff policies in the United States, Apple will still not transfer the production of iPhone to the United States in the coming years, mainly due to high costs.

 

From a cost perspective, the high labor costs in the United States are a burden that Apple cannot afford. If the iPhone is put into production in the United States, its production capacity will be significantly reduced, and local labor costs in the United States will be high. Apple must pay wages that meet US standards, and these costs will be passed on to consumers. Apple will ultimately raise the price of the iPhone to maintain operations.

 

According to investment bank Morgan Stanley's calculations, the imposition of tariffs by the United States will increase Apple's annual costs by approximately $8.5 billion. Reuters quoted analysts as saying that if Apple transfers all tariff costs to consumers, the retail price of the iPhone 16 Pro Max in the United States will rise from the current $1599 to $2300 (approximately 16750 yuan).

 

Of course, the impact of Trump's tariffs on the consumer market is not limited to Apple alone. According to statistics, currently only 2.5% of clothing and 1% of footwear in the United States are domestically manufactured, while Asian countries such as Vietnam are the main sources of imports for American clothing, shoes, and hats.

 

According to data from the Vietnam Textile and Clothing Association, Vietnam's textile and clothing exports will reach 44 billion US dollars in 2024, with the United States being its largest market. Over 35% of the production capacity of clothing brands such as Nike and Lululemon is concentrated in Vietnam. With the upcoming implementation of the so-called 'equivalent tariffs' in the United States, these clothing brands will be forced to raise prices.

 

Consumers: endure more pain

 

The wider tariffs this time (April 2) mean more pain, "said an article on the website of the Dutch International Group think tank, stating that US importers pay tariffs when goods arrive at US ports. Unless they can persuade foreign producers to significantly reduce prices, they will inevitably face higher costs. The scale of the US manufacturing industry needs to more than double to offset the demand for imports. This cannot be achieved overnight, and it also indicates that the US economy will face higher costs.

 

The article states that by 2024, the United States will import $474 billion worth of automobiles, parts, and engines, nearly $300 billion worth of computer systems, parts, and semiconductors, $62 billion worth of civilian aircraft, parts, and engines, $112 billion worth of mobile phones, and $247 billion worth of pharmaceutical preparations. These industries will be the most severely affected.

 

Ryan Young, a senior economist at the American Competitive Enterprise Association, believes that "Trump's tariffs are already pushing up consumer prices while inflation remains uncontrolled. The latest round of tariffs will only make the problem worse.

 

Ryan Young pointed out that "reciprocal tariffs" will harm American industry. Most of the imported products in the United States are not consumer goods, but capital equipment and other inputs used by American companies in producing products domestically. These tariffs will increase business costs, weaken sales, and reduce employment.

 

On the other hand, American consumers are "crazily purchasing" various goods due to tariffs to prevent the imposition of tariffs from raising prices. According to reports, a New York City resident named Noel Pergolo spent about $3500 in a week on car parts, gardening supplies, and electronics, including a 40 inch Hisense TV and a laptop.

 

In addition, due to car buyers attempting to avoid the 25% tariff on all imported cars that came into effect on April 3, US car sales surged 11.2% in March.

 

However, economists say that 'borrowing for consumption is not advisable'. Experts remind consumers to only purchase things they can afford and not to take on debt to avoid the "tariff effect". According to TransUnion, one of the three major credit rating agencies in the United States, the average debt of an average American household is about $6600.

 

New risk: Upward expectation of recession

 

Trump imposed tariffs on important trading partners during his first term. According to statistics from the think tank American Action Forum, protectionist policies caused approximately $57 billion in losses to American consumers annually during those four years.

 

Renowned investor and billionaire Bill Ackerman stated that due to Trump's tariff policies, the United States is heading towards an "economic nuclear winter" of its own making. By imposing massive and disproportionate tariffs, we are undermining the confidence of countries in the United States as a trading partner, "wrote Ackerman on social platform X, who had supported Trump during the election.

 

Business is a game of confidence. Trump is losing the confidence of global business leaders, "Ackerman said." The consequences for our country and millions of citizens who support Trump, especially low-income consumers who are already under tremendous economic pressure, will be extremely negative. This is not the result of our vote for support. "He said Trump has the opportunity to call for a pause in any negotiations to resolve any" unfair "tariff agreements. Otherwise, the United States will move towards a self induced 'economic nuclear winter'.

 

Zhao Yaoting, a global market strategist for Jing Shun Asia Pacific region (excluding Japan), also stated that this reciprocal tariff is the first wave of fire launched by the Trump team in the global trade dispute, and it is reasonable to take the first action to the maximum extent possible. If tariffs in Asia are not lowered, rebalancing will mean that goods that were originally intended for the United States will be heavily diverted to other parts of the world. This will impose a huge burden on American consumers and businesses, and total demand may decrease. This undoubtedly increases the risk of stagflation in the United States.

 

Last week, several investment banks raised their recession risk forecasts, with JPMorgan Chase raising the probability of a US and global economic recession to 60%. Recently, Goldman Sachs also raised the probability of the US economy falling into a recession in the next 12 months from 35% to 45%. Goldman Sachs stated that this adjustment is mainly due to a sharp tightening of the financial environment and increased policy uncertainty, which may result in a greater than expected decrease in capital expenditures.