US tariffs save Apple gadgets but hit cloud industry

Authors: Stephen Nellis and Sonam Rai

(Reuters) – The United States will spare Apple Inc’s Watch and other consumer gadgets from the latest round of tariffs on Chinese goods, according to a product list released on Monday by the U.S. Trade Representative (USTR).

However, parts of computer servers and networking equipment that power cloud data centers and internet services are currently subject to the fee, as are some parts of machines used to make semiconductors.

U.S. President Donald Trump escalated the trade war with China on Monday, imposing 10 percent tariffs on about $200 billion of Chinese imports and warning that if China retaliates against U.S. farmers or industries, “we will immediately enter Phase 3, which involves tariffs on approximately $267 billion in additional imports.”

The administration’s proposal sparked protests from tech companies earlier this year, but the USTR’s final list of taxed devices left out many big brands and consumer products.

The iPhone was not among the “broad range” of products that Apple told regulators in a Sept. 5 comment letter to trade officials that would be hit with a $200 billion round of tariffs. Apple had been concerned about its Apple Watch and AirPods wireless headphones, but both were omitted from the list announced Monday.

The new round of tariffs will come into effect on September 24 at 10 percent and will increase to 25 percent on January 1, 2019.

But if Trump extends tariffs to an additional $267 billion in goods, nearly every Chinese import would be affected, including the iPhone, as well as all other smartphones. Apple shares fell 0.7 percent to $216.29 in after-hours trading.

Shares of Apple suppliers in China and Taiwan fell in Asia on Tuesday morning. Foxconn, a Taiwanese manufacturer formally known as Hon Hai Precision Industry Co, lost 2 percent, while assembly company Pegatron Corp lost 2.4 percent. Camera lens maker Largan Precision Co Ltd lost almost 9 percent.

In the previous round of tariffs on $50 billion worth of goods, the Trump administration removed proposals related to flat-panel TVs from the final list in June.

The new list would also spare fitness trackers from Fitbit Inc., which said in a comment letter to regulators that the tariffs would threaten its own investments in the United States. Fitbit shares closed down 1 percent on Monday.

“We are pleased with this development and appreciate the administration’s time and effort in listening to industry and consumer concerns,” a Fitbit spokeswoman told Reuters.

NEW LIST

However, some products that facilitate the operation of computer networks, such as routers, will remain on the new list, the official said. This could impact smaller tech companies such as Eero, a home router startup that has requested tariff relief. In total, about 300 product categories were written off, including some non-tech consumer devices such as bicycle helmets and child car seats.

Apple did not respond to a Reuters request for comment, while Eero declined to comment. Apple Chief Executive Tim Cook had dinner with U.S. President Donald Trump last month, although neither provided details of the talks.

Apple said in a letter commenting on the administration’s proposals earlier this month that the U.S. tariffs would affect prices for a “wide range” of its products, including the Watch.

“Our concern with these tariffs is that the United States will be hit the hardest, which will lead to lower U.S. economic growth and competitiveness, and higher prices for American consumers,” Apple wrote earlier in a letter commenting on the proposal.

Following Apple’s comments, Trump wrote in a tweet that Apple had an “easy solution” to avoid tariffs. “Make your products in the United States, not in China. Start building new plants now,” he wrote on Twitter on September 8.

On Monday, the list announced this week included a number of devices used to produce servers and networking equipment for data centers.

A group of technology companies including Cisco Systems Inc, Dell Technologies Inc, Hewlett-Packard Enterprise Co and Juniper Networks requested the removal of many of these products, but they remained on the list with only a few exceptions, such as a group of networking companies related accessories.

The group said in a comment to trade regulators on September 6 that “by raising the cost of networking products, the proposed tariffs will hinder the development and adoption of cloud-based services and infrastructure.”

Apple also previously told regulators that tariffs would likely be imposed on some equipment in its data centers.

The chip industry has also felt the effects of the new taxes.

Lam Research Corp, a chip manufacturing equipment company, said in a Sept. 6 letter to trade regulators that tariffs on raw silicon, ceramic machine parts and other items “increase the costs of our U.S. manufacturing operations and reduce our competitiveness in the global semiconductor manufacturing market “. All items from Lam’s letter were included in the final list.

Neither Lam nor the group of technology companies immediately responded to a request for comment.

(Reporting by Peter Henderson, Stephen Nellis and Sonam Rai; Additional reporting by Sayantani Ghosh in Singapore; Editing by Clive McKeef and Stephen Coates)