Apple faces a supply-chain and pricing crisis after Donald Trump threatened on Friday to impose 25% tariffs on all iPhones in the United States, unless Apple began manufacturing devices locally.
Trump’s comments, which were posted to Truth Social, and then repeated by reporters in the White House later, represent the latest step up his campaign for large multinationals to produce their products in the US.
Trump warned that if Apple did not pay the tariff, “a minimum of 25% will have to be charged by Apple.”
Apple is increasing production in India to reduce its reliance on Chinese manufacturers amid growing geopolitical tensions.
Tim Cook, CEO of Apple Inc. recently stated that more iPhones would be sold in America if they were made in India. This shift could be political.
Analysts claim iPhone production in the US is unfeasible. They use threat as a tactic to negotiate.
Apple’s shares fell almost 3% in Friday trading after Trump posted, to reach $195.44.
Analysts warned of the significant costs and logistical challenges that Apple would face if it tried to comply with steep tariffs.
Wedbush Analyst Daniel Ives estimates that the manufacturing of iPhones in America could drive retail prices up to $3500. This is a drastic increase over today’s $1,000 average.
Ives, in a Friday research note, wrote: “We do not see any chance of iPhone production starting in the US soon given the upside-down cost model and Herculean supply chain logistics required for such an effort.”
William Kerwin, Morningstar’s analyst, agreed with these sentiments and described domestic iPhone production as impossible in the short term.
He said: “To us this is a negotiation tactic designed to drive greater US investments from Apple. This will likely take the form of domestic investment in chips and possibly production of devices with lower volumes than the flagship iPhone.”
Apple’s potential strategies in the face of tariff threats
Apple could explore different strategies in order to mitigate the effects of an upcoming tariff increase.
Morgan Stanley analyst Erik Woodring said that Apple may cut the less-profitable models of its iPhone line, and instead focus on units with higher margins to minimize the impact.
Woodring, in an email to clients sent last month, wrote that a “targeted iPhone mixture shift” could help minimize tariffs.
Analysts have also suggested that the release of products could be pushed back.
Wamsi Mohan, a Bank of America Analyst said Apple may switch to a bi-annual launch schedule. This would simplify supply chains and production timeframes.
Apple could also choose to directly confront Trump, linking higher prices with his trade policy.
Analysts have discussed adding a “tariff-surcharge” on each US receipt to make consumers aware how much they are paying due to the new tariffs.
Apple’s US production is limited by constraints
Most analysts are in agreement that moving iPhone production from China to the US would be impractical.
Apple relies on its Chinese partner Foxconn for a large part of their manufacturing. Foxconn employs thousands of people and has a vast network of engineers, suppliers and logistics companies.
Ives stated that the idea that Apple would produce iPhones in America is “a fantasy that isn’t feasible”. He added that if Apple decided to go ahead with the project, it could take up to 10 years for it to become a reality.
These challenges are nothing new.
Jobs replied that “these jobs won’t be coming back” in 2011, when asked by President Barack Obama what would it take to manufacture iPhones here. He was referring to Asia’s unparalleled industrial infrastructure and labor scale.
Under pressure, some of Apple’s US suppliers are growing their US operations, including Taiwan Semiconductor Manufacturing Company.
Foxconn is unlikely to increase its American presence in a significant way.
It has committed to investing $1.49billion in its India operations, instead of a $10billion Wisconsin facility that was highly publicized.
Apple likely to face a 25% tax on its earnings
UBS analyst David Vogt calculated that Apple’s share price could be hit by $0.51 if 25% of iPhones imported annually from China or India were subject to a tariff.
Wall Street expects Apple’s earnings per share to be $7.18 this fiscal year.
Apple has to navigate a complex mix of economic reality, political pressures, and customer expectations as Washington’s demands increase.
Trump’s threats, whether they are a policy change or negotiation tactics, have already forced an assessment of the limitations of globalization as well as the fragility in the tech supply chain.
The ICD published the article “No Chance” iPhones Can Be Made In The US — Options Apple Could Explore Instead To Tackle Tariffs.
