Investing.com -- The U.S.-China tariff situation escalated, escalated again, and now is a full-blown trade war. As of Friday morning, the U.S. has a 145% tariff on goods coming from China, and China has a 125% tariff on goods coming from the U.S. Ground zero for the trade war is Apple, which makes 90% of its iPhones in China.
Shares of Apple Inc (NASDAQ:AAPL) are down 14% since President Trump kicked off ‘liberation day’ on April 2nd, wiping out nearly $500 billion in market value. The wipeout comes despite Wednesday’s 15% rip-roaring rally in Apple after Trump announced a 90-day pause in reciprocal tariffs on all nations but China.
While Apple has been moving some supplies bound for the U.S. to India, the one thing that could provide a significant boost to the company now is an exemption from Trump.
Earlier this week, Trump indicated some exceptions may be possible but didn’t provide specifics. In 2018, Trump provided Apple an exception. In addition, in February, Apple committed to spending $500 billion in the U.S. over the next four years – something Trump points to often.
While many investors think Apple will get an exemption, Morgan Stanley (NYSE:MS) analyst Erik Woodring said, “we don't believe Apple is solely betting on a presidential exemption, and as we've learned in our time covering the company, Apple always thinks long term.”
The analyst said that during the 90-day tariff reprieve, Apple will look to its partners in India – Hon Hai (TW:2317), Pegatron, and Tata – to ramp production significantly in India to help meet US iPhone demand.
To meet U.S. iPhone demand, Apple would have to double its India production, the analyst estimates. Woodring said double production in India would be double but may take longer to ramp.
Another tactic Apple may employ in the near term as it shifts production to India, according to the analyst, would be to eliminate the low-end iPhone storage model and shift demand towards higher-margin iPhone models.
The Morgan Stanley analyst also suggested that Apple could mitigate the artificially higher iPhone price by offering financing plans and benefiting from increased carrier subsidies and trade-in values.
While Apple management is likely praying for Trump to come through with an exemption, the $3 trillion juggernaut cannot count on that, and rest assured, they are exploring every possible scenario to avoid $2000 iPhones in the U.S.