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Trump's Tariff Threat to Hurt Apple: ETFs in Focus

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The first trillion-dollar company, Apple AAPL, is going to face increased costs as President Trump intends to impose tariffs on another $200 billion worth of Chinese goods (see all the Technology ETFs here).

"The burden of the proposed tariffs will fall much more heavily on the United States than on China," Apple said in its letter to U.S. Trade representative (read: Tech Sell-Off, New Tariff Threat Put Low Beta ETFs in Focus).

President Trump was aware of that how these tariffs will affect the bottom line and responded by a tweet “Apple prices may increase because of the massive Tariffs we may be imposing on China - but there is an easy solution where there would be ZERO tax, and indeed a tax incentive. Make your products in the United States instead of China. Start building new plants now."

This tweet was an aftermath to the letter from Apple, which indicated that the proposed tariff would be unfavorable to their products, including watches, wireless air pods, Apple pencil, HomePod and Macmini as well as adapters, cables and chargers. Astonishingly there was no mention of iPhone.

Earnings of Apple Watch and Airpods could go down by 10-20% eventually, affecting the company’s profits for FY19 by less than 1%.

During his election campaign, President Trump was quite vocal about the issues he had with Apple outsourcing its production to China. He had a talk with Apple CEO Tim Cook in January 2017 over the phone where he was quoted saying that Cook had promised him installation of 3 big manufacturing plants in the United States.

The Apple CEO never really responded to the claim as he shifted focus toward how their company was a job creator for the citizens. Apple announced in January that it would be contributing $350 billion to the U.S. economy over the next five-years and claimed to create 20000 new jobs in the same time period.

The recent letter was the first concern shown by the company post the start of tit-for-tat tariffs. CEO Tim Cook assured investors this July, that Apple wasn’t affected by administration’s first round of import tariffs worth $50 billion.

“Our concern with these tariffs is that the US will be hardest hit, and that will result in lower US growth and competitiveness and higher prices for US consumers,” Apple said in its letter.

The U.S. data centers will also suffer with cost of servers, hard drives and cables shooting up. The concerns are also being expressed by other tech companies like Dell DVMT, Cisco CSCO, Juniper Networks JNPR and Hewlett Packard (HPE - Free Report) . They exclaimed that the cost of their networking equipment will increase, affecting profitability and eventually the workforce in an unfavorable way (read: Tech ETFs Tumble: Should You Buy the Dip?).

Buoyed by encouraging industry fundamentals, a rising interest rate scenario, and solid demand for cutting-edge technology, technology ETFs have been the apple of every investor’s eye. The following are the top five ETFs that weigh Apple heavily in their portfolios, suffering negative returns over the past week:

iShares U.S. Technology ETF IYW

It tracks the Dow Jones U.S. Technology Index.  There are 136 holdings in the basket, with Apple occupying the top spot with 18.69% weight. AUM is $4.31 billion and the expense ratio charged is 0.43%. The fund has lost 3.1% over the past week.

Vanguard Information Technology ETF VGT

It tracks the MSCI US Investable Market Information Technology 25/50 Index. Apple occupies the top spot out of the 354 holdings with a weight of 18.08%. AUM is $22.1 billion and the expense ratio is 0.10%. The fund has lost 2.2% over the past week.

Technology Select Sector SPDR Fund XLK

It tracks the Technology Select Sector Index. There are 76 holdings in the basket and Apple occupies the top place with 15.97% weight. AUM is $22.62 billion and the expense ratio is 0.13%. The fund has lost 2.7% over the past week.

Fidelity MSCI Information Technology Index ETF FTEC

It tracks the MSCI USA IMI Information Technology Index. There are 344 holdings in the basket.  Apple holds the top spot, with 14.82% weight. AUM is $2.29 billion and the expense ratio is 0.08%. The fund has lost 2.7% over the past week.

iShares Morningstar Large-Cap ETF JKD

It tracks the Morningstar Large Core Index. There are 89 holdings in the basket and Apple is at the top, with 14.41% weight. AUM is $985 million and the expense ratio is 0.20%. The fund has lost 0.4% over the past week.

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