Table of Contents
Introduction of the company (nature & characteristics)
Industry & Market Structure.
Demand & Supply of the company.
Price elasticity of the company.
Policy which affected the company.
Reason for the policy implementation.
Implications of the Policy.
Unintended implications of the Policy.
Another means by which the government could achieve this.
Similar other example.
This essay gives a deep insight into this and how the trade war between the two countries of US and China has resulted in Apple loosing stock prices and gains for the company.
Apple Inc. is a global level IT and tech giant that have its headquarters established in California. Apple is a big part of the US economy responsible for the growth of the US economy because with its operations it provided jobs to around 2.4 million individuals with a contribution of a whopping sum of $350 billion in the US economy. It is located in Cupertino, California in the United States of America. The industry was founded on April 1, 1976, by two college dropouts, Steve Jobs and Steve Wozniak and Ronald Wayne were the co-founders of the iPhone, iPad Macintosh, the first apple stores, and iPod (Brittanica, 2020). Its CEO is Tim Cook.
The industry of Apple is Consumer Electronics and its sector is in Technology. Apple is a part of the technology or IT industry, where it faces competition from other market giants like Samsung, Oneplus, Xiaomi, and Huawei. It is a rapidly growing market, with a huge scope of expansion (Brittanica, 2020). The market structure of Apple is an oligopoly because there are few competitors in the smartphone market and operating system while in the digital music market their market structure is a monopoly because they are the only ones (Eddu Saver, 2019).
The factors that influence the demand for APPLE inc. are, the price of other highly reputed smartphones or computers, the income of the consumers, brand quality and image (high quality good are more demanded), change in taste and preference such as people stop using phones or there is a health-related issue which releases from phone signals, etc (Your Article Library, 2020). The supply of the product is affected by government policies. Restrictive government policy reduces the supply of the product. The cost of production also determines the supply of the product. An increase in the price of raw material used by Apple will increase the cost of production of its products due to which supply falls (9 To 5 Mac, 2017).
The demand for Apple products is price inelastic which implies that the proportionate change in the quantity demanded of Apple products will be less than the proportionate change in the price as they serve the richer section of the society and provides luxury goods (Microeconomics, 2016).
Both the domestic and international government policies have a major impact on the performance of Apple and its impact on the economy. But the ongoing trade war between the US and China has resulted in a change in a lot of government policies on both ends of the countries increasing the restrictions on trade between both countries.
The trade war between the US and China has started when Trump announced that he will be increasing the tariffs on Chinese imports to boost sales of local businesses. It affected more than $360 billion of Chinese goods. China responded by also increasing the tariffs that now range from 5% to 25% on American goods, affecting $110 billion of US products (BBC, 2020). Apple does a majority of its assembling in China using agreement makers. It has been a well-known fact that Apple products are assembled in Zhengzhou, China, due to cheap labour and high manufacturing skills. Its factory employs around 350,000 workers that can produce as much as 500,000 iPhones a day.
Apple has highly invested in the country and has a higher exposure to exports. With this in mind, with the imposition of tariffs between the two countries, a 25% tariff could lead to a $160 price increase. A significant price increase over Apple products would lead to a huge decrease in demand. This would also lead to lower sales, lower profitability, and low confidence among investors and traders (Burns, 2020). Since the announcement of a tariff increase, the stock price of Apple has plunged. Look at the figure below for more information.
Stock prices of Apple in August 2019, upon announcement and retaliation in US-China trade war. Source: Trading View
Moreover, Apple is known to have a large market in China, is the fastest-growing smartphone maker in the said country. In 2018, Apple reported a total of $51 billion in revenue from China, Hong Kong, and Taiwan. The total revenue for the year amounts to $265.6 billion (Garlick, 2019). The issue of a trade war would hugely affect Apple due to the loss of confidence among Chinese customers. It can be seen in the graph below for the financial information on the Chinese share on Apple revenues over the years.
The heavy-duty imposed on imported goods by both countries and bad trade relations with each other has impacted the performance of Apple inc. because Apple has its major production hub in China, as they can produce their products at lower costs and with advanced technology there. But due to bad relations with China, Apple needs to shift its production base to some other country that will result in increased costs for Apple Inc (Peng, 2016). This will be ultimately passed on to the customers worldwide in the form of higher prices. A rise in the price of Apple products will reduce the consumer surplus that indicates a decline in the social surplus as the total benefit for the society decreases. The US government adopted this policy just for its political gain over the Chinese government.
U.S. President Donald Trump showed that he was arranging another round of levies against China as much as $267 billion, which would come on the head of the $200 billion in Chinese products that the U.S. is as of now focusing on. The President likewise tweeted that the heightening exchange hindrances could raise the costs of Apple items in the U.S. while likewise approaching the organization to manufacture more plants in the U.S to minimize expenses.
The trade war of 1987 between Japan and US is another major example of this. In this, the US government had doubled the import prices of Japanese goods. Although Japan did not retaliate in response to this act of the US made the country bear huge losses.
If we can summarise the entire discussion as that the trade restrictions have resulted in a loss to not only the US and China but for other countries as well because they are the biggest countries in terms of GDP and trade. With the escalation of a trade war between USA ns China, Apple Inc. was forced to close down nearly 6% in 2019 (Funaiole, 2019). China had raised the tariffs of some US goods with President Trump also increasing tariffs further in retaliation. This war has affected so many stocks with Apple hit the most. Firstly, Apple Inc. assembles its iPhones primarily in China. Despite the high number of American suppliers, Apple Inc. spent $60 billion on the American suppliers 2018. The tech giant iPhone's assembly is carried on in Mainland, China. Thus, with the above explanation, it can be concluded that the ongoing trade war going on as a result of political influences is proving to have a great impact on the stock prices and supply chain for the company of Apple Inc. As the company has to suffer and bear a huge amount of loss of revenue and income as a result of this.
9 To 5 Mac. 2017. Here’s why new iPhones are always supply-constrained at launch. [Online]. Available at: https://9to5mac.com/2017/09/18/iphone-shortages/#:~:text=The%20article%20suggests%20that%20there,Apple's%20perfectionism%2C%20and%20component%20shortages [Accessed on: 4th October’2020]
BBC. 2020. A quick guide to the US-China trade war. [Online]. Available at: https://www.bbc.com/news/business-45899310[Accessed on: 4th October’2020]
Britannica. 2020. Apple Inc. [Online]. Available at: https://www.britannica.com/topic/Apple-Inc [Accessed on: 4th October’2020]
Burns, P. 2020. Corporate Entrepreneurship and Innovation. United Kingdom: Macmillan Education UK.
Eddu Saver. 2019. Apple Inc. [Online]. Available at: https://www.eddusaver.com/apple-inc-2/ [Accessed on: 4th October’2020]
Funaiole, M. P. 2019. Perspectives on Taiwan: Insights from the 2018 Taiwan-U.S. Policy Program. United Kingdom: Center for Strategic & International Studies.
Garlick, J. 2019. The Impact of China’s Belt and Road Initiative: From Asia to Europe. United Kingdom: Taylor & Francis.
Microeconomics. 2016. Price elasticity of demand. [Online]. Available at: https://sites.google.com/site/microeconomics0324684/microeconomics-concp/price-e [Accessed on: 4th October’2020]
Peng, M. W. 2016. Global Business. United States: Cengage Learning.
Your Article Library. 2020. [Online]. Available at: https://www.yourarticlelibrary.com/economics/5-major-factors-affecting-the-demand-of-a-product-micro-economics/8882 [Accessed on: 4th October’2020]
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