Tim Cook, the dynamic CEO of Apple, has political savvy. This truth is evident, provided the tariff carve out that Cook secured for his Apple Watch, AirPods and Mac Mini products.
After President Trump announced a new round of 10 percent tariffs on $200 billion worth of Chinese imports, the administration positioned itself against significant components of the tech industry while advocating for ones willing to submit to government demands.
Apple, sadly, joins a class of companies willing to risk long-institutionalized supply chains for the praise of the Trump administration. We can’t discount Cook’s decision making or corporate stratification to advocate for his own business and no one else; however, Trump’s actions in carving out critical products from tariff rounds brings up the case of favoritism.
Under Trump’s latest round of tariffs, the 10 percent levy on thousands of products is intended to go into effect in late September. The tariffs cover products such as seafood and semiconductor components. Companies like Apple are covered by tariff exemptions for wearable consumer tech products (i.e., the FitBit, Garmin smart watches, and the over-hyped Apple Watch). The remainder of the tech industry is at significant risk when we consider the fact that tariffs will still have a negative effect.
Trump has levied tariffs on parts of the tech industry that make up the “cloud.” The cloud is the term used to describe hardware endpoints, software and other areas of information technology that require a connection to the internet.
This is a significant issue because these tariffs are ultimately taxes on data centers and other physical cloud industry components. American computing firms import parts from Chinese companies to build the physical IT infrastructure needed to host the data and information for millions of users and thousands of businesses.
Firms like Cisco, Dell, Hewlett-Packard and Juniper Networks develop cloud computing systems for various industries and consumer demographics. These firms, and others like them, also create massive data centers to host proprietary and client IT systems. For example, Amazon Web Services provides a “virtual server,” or a cloud server, for businesses to run critical programs or build complex IT systems without the necessary on-site hardware.
Given the unusual cross-industry nature of this segment, artificial increases in costs (i.e., tariffs, taxes, levies and duties) could force increases in price. Specifically, a levy will increase the cost of manufacturing a particular component, the shipment of such a component, the mid-level assembly or sale of the component, and the final transaction.
“Because these technologies empower the productivity and innovation potential of all downstream sectors of an economy, the application of tariffs raises their costs, which lowers their consumption and use, which leads to lower economic growth,” Stephen Ezell of the nonprofit Information Technology & Innovation Foundation said in an email. Ezell, the organization’s vice president for global innovation policy, co-authored a report on how the tariffs would directly impact the tech industry.
“A 10 percent tariff levied on Chinese ICT imports would slow the growth of U.S. output by $163 billion over the next 10 years, and a 25 percent tariff would slow output by $332 billion,” Ezell said.
According to his report (written with colleague Caleb Foote) titled “Why Tariffs on Chinese ICT Imports Would Harm the U.S. Economy,” tariffs on these classes of products will directly affect American households negatively.
“For an average American household, a 10 percent tariff on Chinese ICT imports would mean that after 10 years, its annual household income would be $150 less than it would have been without tariffs, and under a 25 percent tariff, $306 less,” Ezell and Foote wrote.
These increases in costs will have far-reaching direct and indirect effects that range from shrinking bottom lines to customer retention issues due to higher prices at the final output.