Investing.com -- In a note to clients Friday, Jefferies analysts outlined the potential impact of increased tariffs on Apple (NASDAQ:AAPL)'s iPhone if former President Donald Trump reintroduces higher trade barriers during a possible second term.
While Apple has made efforts to diversify its production beyond China, the firm said the company remains heavily reliant on the region, leaving it vulnerable to proposed tariffs.
According to Jefferies, "Trump may raise tariffs on Chinese imports to 60% and elsewhere to 10%."
Although Apple was exempt from tariffs during Trump's previous term, analysts warn this may not happen again.
With only 10% of iPhone production currently outside China, Jefferies says the worst-case scenario could see the company face a $256 per phone tariff on its flagship iPhone 16 Pro Max.
This would represent 22% of the phone's average selling price (ASP) in the U.S.
The firm highlights that the ultimate impact on Apple's gross margins (GM) would depend on the scenario. They explain that in the most severe case, where all non-U.S. content is taxed at 60%, Apple's gross margins could decline by 6.7 percentage points, reducing the company's discounted cash flow (DCF) valuation by approximately 10%.
A less punitive scenario, where only Chinese-made content is taxed at 60% and other non-U.S. content at 10%, could cut gross margins by three percentage points and reduce valuation by 5%.
"Downside [is] far from being disastrous," Jefferies notes, but stresses that increasing demands for local production in markets like India and Indonesia pose additional long-term challenges.
These pressures, coupled with margin reductions from relocating assembly lines, could strain Apple's supply chain profitability in the years ahead, according to the investment bank.
While tariffs might be manageable, Jefferies warns they "may only be the start of a longer-term problem of rising costs due to localizing production."