Market Mispricing Trump’s iPhone Tariffs, Gene Munster Warns

• Gene Munster views President Trump’s 25% tariff threat on Apple (AAPL) as a surprising shift, driven by political momentum and a broader push to bring manufacturing like iPhones to the U.S., potentially pressuring China in trade talks.
• The tariff would likely increase iPhone prices by about 14%, not 25%, impacting Apple’s gross margin from 44% to 41% and slightly reducing projected sales growth from 5% to 4%.
• While automation could enable limited iPhone production in the U.S., significant reshoring would require substantial government incentives, similar to the CHIPS Act, to offset high costs.

President Donald Trump’s recent push for Apple (AAPL) to manufacture iPhones in the United States, backed by a threat of at least a 25% tariff on imports, has sparked significant discussion. Gene Munster, managing partner at Deepwater Asset Management, expressed surprise at this development during a Bloomberg interview, noting that it marks a shift in the relationship between Trump and Apple. For eight years, Apple, a global symbol of innovation, had largely been spared from tariffs during Trump’s first administration, fostering an expectation that this leniency would persist. However, Trump’s recent political momentum, particularly following a successful overseas trip, appears to be driving a tougher stance. Munster suggested that Trump is using Apple to signal broader intentions to escalate tariffs, referencing a 10% benchmark set with the UK as a starting point.

The tariff threat is not just about Apple but reflects Trump’s broader goal to bring manufacturing, particularly in pharmaceuticals and advanced electronics, back to the U.S. amid changing views on globalization. Munster pointed out that targeting Apple could also serve as leverage in trade negotiations with China, where Apple’s manufacturing employs around a million people directly and supports a much larger ecosystem. This move could pressure China to make concessions in ongoing trade discussions, given Apple’s economic significance there.

Addressing the tariff’s impact, Munster clarified that a 25% tariff would not directly translate to a 25% price hike for iPhones. Instead, the tariff applies to the cost of goods entering the U.S., resulting in an estimated 14% price increase for consumers. Munster’s financial models reflect this, projecting a slight reduction in iPhone sales growth from 5% to 4% and a drop in Apple’s gross margin from 44% to 41%, assuming Apple absorbs most of the tariff cost. He noted that investor concerns about these uncertainties have already impacted Apple’s stock, despite strong earnings and a positive outlook for the June quarter.

On the feasibility of reshoring iPhone production, Munster acknowledged past challenges, with one of B’berg’s moderators citing Apple’s unsuccessful attempt to manufacture iMacs in the U.S. about a decade ago due to a lack of expertise and different labor conditions compared to countries like China, Vietnam, or Indonesia. Advances in automation and robotics could enable a small portion of iPhone production to return to the U.S., but significant cost barriers remain. Munster estimated that producing iPhones domestically could triple their price without substantial government intervention, similar to the CHIPS Act, which has spurred investment in U.S. chip manufacturing by companies like Nvidia (NVDA) and TSMC (TSM). For meaningful reshoring, Congress and the President would need to provide financial incentives to offset the costs for companies like Apple building critical technology.

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