President Trump’s new round of tariffs on Chinese imports are likely to hit U.S. technology stocks and consumers the hardest. But iPhone maker Apple Inc. (AAPL) its smartphone competitors may get the worst of it, as cellphones are the most exposed consumer product to trade with China. As tariffs squeeze profit margins, Apple and other firms will be forced to raise prices in order to compensate for higher costs, crimping overall consumer demand. 

“Tariffs are taxes—and increasing costs on companies puts consumers in the middle of President Trump’s trade war,” said Gary Shapiro, chief executive officer of the Consumer Technology Association, according to Bloomberg.

What It Means for Investors

If Trump follows through with his threat to impose a 10% tariff on a further $300 billion worth of Chinese goods, tech companies would fork over an additional $1 billion a month in duties, according to the trade group. During the month of June, the tech industry paid out $1.7 billion in tariffs, reflecting the high costs companies are facing from the 25% tariffs already levied on $250 billion worth of imports from China. Set to take effect on September 1, the new tariffs are expected to impact around $13 billion worth of technology imports from China.

Based on U.S. Census Bureau data compiled by Barron’s, among products subject to new tariffs, cellphones are the most exposed consumer product. Total imports of cellphones from China in 2018 were valued at $43.2 billion, 82% of U.S. cellphone imports from all sources. Laptops are the second most exposed at $37.5 billion worth of imports from China, or 94% of total laptop imports. 

Cellphones and laptops—that’s a big chunk of Apple’s business, and new research suggests that Apple’s earnings could take a hit of anywhere from 9 cents to $1.51 per share depending on the actual size of the tariffs (10% or 25%) and whether Apple has to absorb the additional costs or can pass them on to consumers. Some analysts think the tariffs will cause Apple to raise the price of iPhones by as much as $100, according to a recent story by Barron’s

Analysts at Webush Securities called Trump’s recent tariff announcement a “potential gut punch” for Apple, arguing that if the iPhone maker absorbs the costs of the tariffs, earnings for fiscal year 2020 could be negatively affected by about 4%. If the company passes the costs on to consumers in the form of higher prices, iPhone demand could weaken by anywhere from 6 million to 8 million units, or between 3% and 4% of total iPhone sales expected over the 2020 fiscal year, according to Business Insider.

“The risk of import tariffs impacting U.S. consumer demand for China-made smartphones and other electronics goods has risen once again,” wrote Cowen analyst Krish Sankar.

Consumer spending has yet to feel much of big impact from tariffs so far as companies have largely absorbed the increase in costs. But that is expected to change when the new tariffs come into effect next month. A range of other consumer products from kitchenware and ceiling fans to microwaves and Christmas ornaments are all heavily reliant on trade with China. Toys from China, for example, amounted to $11.9 billion, or 85% of total toy imports in 2018. 

Looking Ahead

Consumer spending has held up recently even as a number of market signals are warning of a possible recession hitting the U.S. economy sooner rather than later. However, that consumer spending will be tested in less than a month’s time if Trump’s threatened tariffs do come into effect. If the American consumer, which is one of the major drivers of the U.S. economy, falters, it’s not just big tech companies like Apple that should be worried.