US-China trade war: Apple, big tech face key tariff deadline

Big tech is facing a make or break week as the U.S.-China trade war approaches a key deadline.

The Dec. 15 deadline for the U.S. to levy a 15 percent tariff on about $160 billion of Chinese goods, including smartphones, laptops, electronics and clothes, is Sunday. The tariffs would be the first direct blow to the tech industry, which has been relatively insulated from the trade dispute.

The tariffs are a “potential gut punch” to the sector and remain a “lingering hurdle” for tech stocks to go higher into year-end, New York-based Wedbush Securities analyst Dan Ives wrote in a note sent to clients on Sunday.

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The tech-heavy Nasdaq Composite index has gained 30 percent year-to-date and is the top performer of the three major U.S. stock-market averages. The Nasdaq has gained 66.6 percent since President Trump’s election victory on Nov. 8, 2016.

Apple and semiconductors have the most at stake as the looming tariffs serve as a “dark cloud” hanging over their heads heading into the home stretch of the holiday shopping season, Ives wrote. He says Apple is the “poster child” of the trade dispute because of the “pressure on its supply chain” due to its Foxconn factory in China.

Apple CEO Tim Cook has been cozying up to Trump with the hopes of shielding his company from the tariffs.

The two leaders, in November, toured Apple’s manufacturing plant in Austin, Texas. In August, they met over dinner at the White House. Cook has argued that the tariffs give South Korean rival Samsung an unfair advantage.

Ives thinks “an exemption for Apple on iPhone production will likely be in the cards” if a partial trade deal is not reached by the Dec. 15 deadline, but warns the company would take about a 4 percent, or 50 cents per share, hit to its fiscal year 2020 earnings if the tariffs are implemented.

"We believe the overall China tariff/demand situation represents an overhang on Apple shares and will remain a lingering dark cloud over the story and semi names until a deal is done, although our Cupertino bull thesis and SOTP services growth story remains unchanged," Ives wrote.

On Friday, China extended an olive branch to the U.S., waiving tariffs on U.S. soybeans and pork, as the two sides continue to work toward a phase one deal. China has called on the U.S. to roll back the tariffs on its goods, something Trump has said he is unwilling to do. The U.S. has placed tariffs on more than $350 billion of Chinese goods. China has retaliated by slapping levies on more than $150 billion of U.S. products.

Trump has repeatedly suggested a simple solution for companies wanting to avoid the tariffs.

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“Make or produce your goods and products in the good old USA,” Trump tweeted in May. “It’s very simple!”