Trump's Tariffs Continue to Affect Apple. Should Investors Sell the Stock?

President Trump's economic policies are causing significant volatility in the stock market. On April 3, he announced his administration would impose expansive tariffs on most countries. Then, about a week later, he decided to pause this plan for 90 days for most countries -- except China, for which he increased the previously announced tariffs. This was terrible news for some companies, like Apple (NASDAQ: AAPL), which does significant manufacturing in the country. Is it time to give up on the iPhone maker?

The uncertainty remains

Let's first review the impact tariffs could have on Apple's business. The company makes the lion's share of its revenue from selling hardware. In the first quarter of its fiscal year 2025, ending on Dec. 28, the tech giant reported total revenue of $124.3 billion, up 4% from the year-ago period. Apple's hardware sales came in at almost $98 billion -- about 79% of its top line. This segment's revenue grew by 1.6% year over year.

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Since Apple does so much manufacturing of these devices abroad, including in China, tariffs would lead to an increase in the company's costs, forcing it to either absorb these expenses -- thereby squeezing its bottom line and margins -- or pass them on to consumers, perhaps slowing down sales in an already slow-growth unit. The current administration is currently exempting electronic devices from the tariffs on Chinese imports. That means Apple's business is spared, at least for now.

However, Trump has said that tariffs can (and will) eventually be levied on electronics, so Apple is not out of the woods yet. There are few things financial markets hate more than uncertainty. The current U.S. president and his entourage are sowing significant uncertainty, particularly for companies like Apple.

Keep calm and buy the dip

It's essential to look beyond the current situation and focus on Apple's long-term prospects. We have to consider the possibility that even if Trump imposes sweeping tariffs on all imported goods, they might not outlast his administration. And even if they do, companies as successful as Apple have the means to get around them. Over the trailing-12-month period, Apple generated $98 billion in free cash flow.

AAPL Free Cash Flow data by YCharts

That much capital grants the company significant financial flexibility to pursue investment opportunities to help it overcome this headwind. Apple recently announced it would spend $500 billion in the U.S. in the next four years to expand its manufacturing capacity, among other things. We don't know what that will end up looking like just yet, but relying less on imports from China and other countries and doing more local manufacturing is a great way to avoid the impact of tariffs. Furthermore, some corporations have the luxury of being able to raise their prices without losing their customers. Apple is one of them.

It has one of the most valuable brand names in the world and a loyal customer base. Considering it sells dozens of millions of devices annually, it does not need to hike its prices by $500 to compensate for the increased costs tariffs would bring. Even a modest price hike on its devices -- which, despite already being outrageously expensive, are massively successful -- would go a long way. It's also worth noting that Apple's services segment, although it still trails the device unit by a wide margin, has excellent long-term prospects.

The company now boasts over 1 billion paid subscriptions with an installed base of 2.35 billion devices. It is making progress in areas with significant growth potential, such as finance, video streaming, and healthcare-related services. Services carry far higher margins for the company, and as this segment makes up a higher percentage of Apple's revenue, the company's profits and margins will expand. That might take some time, but Apple's devices business is far from dead, even with the tariff threat.

The tech leader might go through a challenging period in the coming quarters, but thanks to its significant capital, strong moat (due to its brand power), and prospects within its services unit, Apple should succeed in overcoming these obstacles and perform well in the long run. That's why investors should hold on to its shares and even buy more on the dip.

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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.