How bad could sustained tariffs on China be for Apple stock?
If tariffs persist, Apple’s profit margins could be “decimated” without price hikes.
Mentioned: Apple Inc (AAPL)
This article was updated to account for President Donald Trump’s latest change in his tariffs.
Key Morningstar metrics for Apple Stock
- Morningstar Rating: ★★★★
- Fair Value Estimate: $200.00
- Morningstar Uncertainty Rating: Medium
- Economic Moat: Wide
One of the most widely held US stocks from one of the world’s best known-companies is squarely in the crosshairs of the US-China tariff battle: Apple AAPL. With the firm making a significant portion of its products in China, Vietnam, and India, its margins and profits are especially vulnerable to the tariffs imposed by President Donald Trump. With Trump taking the penalties up to 125% on goods from China on Wednesday, the potential damage to Apple on that front only worsened.
Concerns about the impact of tariffs have knocked Apple’s stock down significantly harder than the rest of the market. Going into Wednesday’s session, Apple stock had fallen 20% since the tariffs were announced on April 3, and it has lost 31% so far in 2025.By comparison, the broad market as measured by the Morningstar US Market Index is down 12% since the announcement and 15% in the year to date. Apple stock jumped 10% Wednesday after Trump rolled back his threatened tariffs against most countries, even as he further increased the tariff on China.
While the stock’s decline reflects concerns about the impact of tariffs, the real damage to Apple’s business will depend on how long the tariffs are sustained. “If Apple were to absorb the China tariffs without a corresponding price increase, its gross margins would be decimated,” says Morningstar equity strategist Brian Colello.
The math around Apple’s exposure to tariffs is daunting. Tariffs could add hundreds of dollars to the cost of producing a single iPhone. Collelo says Apple earned 88% of revenue from products in fiscal 2024, most of which is potentially subject to tariffs in some form. The remaining 12% is services revenue. Services are a higher-margin business. Services make up 39% of gross margin dollars, which reflects the profit Apple makes on every dollar of revenue. “Using gross margin as a proxy for net income, the vast majority of Apple’s revenue and the majority of its profits are under the threat of tariffs,” Colello explains.
Collelo says that to protect its margins, Apple would have little choice but to raise prices on iPhones and iPads: “Apple might mitigate this margin deterioration, or the need to raise prices, to the extent it can shift some production to India.” Of course, raising prices would have a negative impact on how many products the company sells. “iPhones are likely critical devices to all consumers, but it’s highly likely that replacement cycles will elongate and customers will hold on to their existing devices a little while longer. Apple’s underwhelming rollout of AI via Apple Intelligence probably exacerbates this issue. A new ‘must-have’ feature like 5G always speeds up the replacement cycle, whereas a lack of such features elongates it.”
There also could be a negative knock-on effect for Apple on the services side. “Fewer iPhone sales mean fewer Apple Care renewals, perhaps fewer iCloud upgrades,” Colello says. “Customers might still retain the bulk of subscriptions if they hang on to existing devices, but perhaps this gets shaved off too if they face recession concerns, in addition to fewer new additions of services. In other words, services revenue isn’t bulletproof either.”
Add it all up, and sustained tariffs would take a meaningful chunk out of Apple’s earnings. “Loosely speaking, I would estimate that a 20%-40% decline in earnings power appears plausible for Apple if the China tariff remains at 54%, and likely worse if the 104% tariff were to remain in place for an extended period of time,” Colello says. “This may come from similar revenue (higher prices but lower volumes) as in a non-tariff world, but at lower margins. Or it might come from higher prices and similar margins, but probably at much lower volumes to bring revenue down.”
