How Much More Could Your Smartphone Cost?

Our analysts Michael Zezas and Erik Woodring discuss the ways tariffs are rewiring the tech hardware industry and how companies can mitigate the impact of the new U.S. trade policy.

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Michael Zezas: Welcome to Thoughts on the Market. I'm Michael Zezas, Morgan Stanley's Global Head of Fixed Income and Public Policy Research.

Erik Woodring: And I'm Erik Woodring, Head of the U.S. IT Hardware team.

Michael Zezas: Today, we continue our tariff coverage with a closer look at the impact on tech hardware. Products such as your smartphone, computers, and other personal devices.

It's Thursday, April 17th at 10am in New York.

President Trump's reciprocal tariffs announcements, followed by a 90 day pause and exemptions have created a lot of turmoil in the tech hardware space. People started panic buying smartphones, worried about rising costs, only to find out that smartphones may or may not be exempted.

As I pointed out on this podcast before, these tariffs are also significantly accelerating the transition to a multipolar world. This process was already well underway before President Trump's second term, but it's gathering steam as trade pressures escalate. Which is why I wanted to talk to you, Erik, given your expertise.

In the multipolar world, IT hardware has followed a China+1 strategy. What is the strategy, and does it help mitigate the impact from tariffs?

Erik Woodring: Historically, most IT hardware products have been manufactured in China. Starting in 2018, during the first Trump administration, there was an effort by my universe to diversify production outside of China to countries friendly with China – including Vietnam, Indonesia, Malaysia, India, and Thailand. This has ultimately helped to protect from some tariffs, but this does not make really any of these countries immune from tariffs given what was announced on April 2nd.

Michael Zezas: And what do the current tariffs – recognizing, of course, that they could change – what do those current tariffs mean for device costs and the underlying stocks that you cover?

Erik Woodring: In short, device costs are going up, and as it relates to my stocks, there's plenty of uncertainty. If I maybe dig one level deeper, when the first round of tariffs were announced on April 2nd, the cumulative cost that my companies were facing from tariffs was over $50 billion. The weighted average tariff rate was about 25 per cent. Today, after some incremental announcements and some exemptions, the ultimate cumulative tariff cost that my universe faces is about $7 billion. That is equivalent to an average tariff rate of about 7 per cent. And what that means is that device costs on average will go up about 5 per cent.

Of course, there are some that won't be raised at all. There are some device costs that might go up by 20 to 30 per cent. But ultimately, we do expect prices to go up and as a result, that creates a lot of uncertainties with IT hardware stocks.

Michael Zezas: Okay, so let's make this real for our listeners. Suppose they're buying a new device, a smartphone, or maybe a new laptop. How would these new tariffs affect the consumer price?

Erik Woodring: Sure. Let's use the example of a smartphone. $1000 smartphone typically will be imported for a cost of maybe $500. In this current tariff regime, that would mean cost would go up about $50. So, $1000 smartphone would be $1,050.

You could use the same equivalent for a laptop; and then on the enterprise side, you could use the equivalent of a server, an AI server, or storage