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Why Apple stock surged on Tuesday

What happened

Shares of Apple (NASDAQ: AAPL) jumped on Tuesday after the Trump administration opted to delay the implementation of tariffs on certain Chinese goods. With cellphones and other electronics now free from the planned 10% tariff until mid-December, Apple's upcoming iPhone launch and holiday season sales shouldn't be affected. Apple stock was up 4.1% at 12:15 p.m. EST; it had been up as much as 5.8% earlier in the day.

So what

A 10% tariff on certain Chinese goods not already affected by 25% tariffs, including various electronics, was set to go into effect on Sept. 1. Apple typically launches new iPhones in September, so the tariff would have been in effect for the launch as well as Apple's holiday sales season.

That 10% tariff is now being delayed until Dec. 15 on some items, including cellphones, laptops, and game consoles. Apple has been diversifying into services, but hardware sales, and especially iPhone sales, remain the company's core business.

This tariff delay will prevent Apple from needing to either eat the cost of the tariffs or raise prices on its hardware. After a weak iPhone launch in 2018, partly due to high prices, Apple may not be able to pass higher costs on to its customers without suffering a big drop in unit sales.

Now what

While Apple stock is surging on this tariff delay, the 10% tariff will go into effect later this year if the U.S. and China don't reach a trade deal by the new deadline, and if the tariffs don't get delayed further. Apple's iPhone sales are already slumping; even higher prices will only make that trend worse.

Apple's holiday season may have been saved by this delay, but the company's heavy dependence on the iPhone remains a problem.

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Timothy Green has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Apple. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has the following options: short January 2020 $155 calls on Apple, long January 2020 $150 calls on Apple, short January 2020 $155 calls on Apple, and long January 2020 $150 calls on Apple. The Motley Fool Australia has recommended Apple. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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