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The iPhone’s supply chain, much of it based in China, could be hit by Donald Trump’s tariffs. 

A better than expected quarterly result for Apple boosted shares in its Asia-based suppliers on Wednesday. The company became the world’s first to be valued at $1 trillion. But analysts say the reprieve may be shortlived amid the escalating trade war between the U.S. and China.

Asia-listed companies supplying key parts for Apple broadly rose in the morning session on Wednesday after the tech giant blasted through Wall Street expectations with a 17 percent year-on-year jump in revenues and struck an upbeat outlook for the month ahead.

Taiwan-listed iPhone core-processor chipmaker Taiwan Semiconductor Manufacturing and major assembler Hon Hai Precision Industry, as well as Japanese-listed screen suppliers Sharp and Japan Display, all gained on the day after Apple shares rose as much as 4 percent in after-hours trading in New York.

“The overall Apple ecosystem at least is relatively stable and seeing some product mix improvement, a better situation than some early fears after the mixed iPhone X initial reception,” says Randy Abrams, an analyst with Credit Suisse in Taipei.

Earnings of those suppliers would be hurt under a trade war.

Iris Pang, economist

However, the rally for suppliers is expected to be shortlived, with Apple’s forecast beat stemming from higher iPhone X pricing rather than unit sales, says CLSA analyst Sebastian Hou. Indeed, several companies, including iPhone camera lens maker Largan Precision, closed down on the day after earlier gains.

The retreat comes as analysts are increasingly concerned companies from across Asia involved in the iPhone’s highly integrated supply chain— including Taiwan, Japan and South Korea — will be hit by the fallout from the U.S.’s ongoing tit-for-tat trade dispute with China.

“Earnings of those suppliers would be hurt under a trade war,” ING China economist Iris Pang says. “Smartphones are so far immune … but when the trade war hits global demand, then they will still feel the damage.”

Apple chief executive Tim Cook signaled on Tuesday that the tech giant was in talks with the White House over the Trump administration’s threats to impose hundreds of millions of dollars in new tariffs on Chinese exports.

If Apple failed to reach an agreement with the U.S. government that will soften the blow, “component suppliers will probably suffer,” says Sam Kao, an analyst at Taipei-based Yuanta Securities, noting also that 32 percent of the market value of the groups listed on Taiwan’s Taiex are Apple suppliers.

While the impact from tariffs was so far “somewhat modest” in terms of both broad product demand and direct effect on Apple suppliers, there were “a lot of potential risks” if the dispute escalates further, says Credit Suisse’s Abrams.

China may pursue retaliation against U.S. brands such as Apple, HP and Dell or components from Intel and Qualcomm, with some substituted with China’s or other countries’ suppliers, Credit Suisse has warned in a research note. Smartphones, computers and tablets — which have so far been excluded from tariff lists proposed by Washington and Beijing — could be targeted in future tariff rounds.

And an escalation of global trade tension is now Moody’s “baseline scenario,” the rating agency announced on Tuesday, also noting, “Asia will probably experience higher disruption given the region’s integration in global supply chains.”

A swath of manufacturing gauges from across Asia fell in July, data showed on Wednesday, but “there were no clears signs the first tranche of U.S. tariffs on Chinese goods that came into effect in early July have had a significant impact on the rest of the region,” says Capital Economics Asia economist Krystal Tan.

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By Edward White

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