THERE’S NO EASY WAY TO SLICE APPLE’S TARIFF TRADEOFF.

That suggests the company may take a similar approach with the iphone. In its September letter to Lighthizer, Apple said tariffs would increase product prices.

The 25-per-cent tariff on iphones would likely apply to the wholesale price of the devices when they are imported from China. Apple doesn’t disclose wholesale prices, but research firms often estimate the bill of materials.

A US$1,249 iphone XS Max with 256 gigabytes of storage has US$453 worth of parts, according to Techinsights. A 25-per-cent levy on that would be US$113, raising the purchase price by about nine per cent. Apple’s other models, the iphone XS and the iphone XR, could face a similar increase, according to estimates. In a recent note to investors, Morgan Stanley estimated that a US$999 iphone XS would cost US$160 more. Jpmorgan analysts forecast a 14-per-cent price increase.

This may only apply to U.S. iphone sales, limiting the damage. About a third of iphone revenue comes from the U.S., according to Shannon Cross of Cross Research.

That won’t address the problem of even more expensive iphones, though. A series of price increases in recent years has already coincided with declining sales. If Apple passes the whole tariff cost to U.S. consumers, demand could drop by 10 per cent to 40 per cent, Cowen’s Sankar estimated. That, in turn, may slice earnings per share by one per cent to four per cent in fiscal 2020, the analyst said.

Alternatively, Apple could eat the cost and leave iphone prices untouched. That would dent earnings per share by six per cent to seven per cent, based on a Us$450-per-device import cost and annual U.S. unit sales of 40 million, according to Sankar.

Still, Apple has experience absorbing extra costs. When currencies swing, the company manages to protect its gross profit margins, Cross noted.

Apple could work around the tariff issue as well. There’s a possibility of Apple rejigging its supply chain to build more products outside China. Apple is ramping up production in India to avoid local taxes and has done similar work with Foxconn in Brazil.

MARK SCHIEFELBEIN / THE ASSOCIATED PRESS A woman uses her smartphone as she walks past an Apple display in Beijing, With the U.S. and China both slapping tariffs on trade, Apple Inc. may face levies on U.S. parts going to China and finished products coming to the U.S.