Apple nearly avoids crisis after Trump gives tariff exemption
Apple Inc. has successfully navigated what could be its most significant crisis since the pandemic, at least for the time being. Donald Trump’s implementation of 125 percent tariffs on Chinese-produced goods poses a significant risk to the stability of its supply chain, reminiscent of the disruptions caused by the Covid pandemic five years prior. On Friday evening, the President of the United States delivered a significant win for Apple by exempting a range of widely-used consumer electronics from certain regulations. The product lineup encompasses iPhones, iPads, Macs, Apple Watches, and AirTags.
The introduction of a new, reduced sectoral tariff on goods containing semiconductors signifies a notable development, even as a 20 percent tariff on imports from China persists. This adjustment is viewed as a victory for Apple and the broader consumer electronics sector, which continues to depend significantly on manufacturing capabilities in the Asian market. “This development represents a significant relief for Apple,” stated Evercore ISI analyst Amit Daryanani in a note released on Saturday. “The proposed tariffs were poised to escalate material cost inflation.”
Analysts anticipate a rebound in shares on Monday after a significant 11 percent decline observed this month. Prior to the recent exemption, the iPhone manufacturer had outlined a strategy to modify its supply chain, aiming to increase the production of iPhones destined for the US in India, a move that would have resulted in significantly reduced tariffs. Apple executives were confident that this approach would serve as a timely remedy to circumvent the significant tariffs imposed by China and prevent substantial price increases.
The iPhone manufacturing facilities in India are projected to exceed an annual output of 30 million units, indicating that production from this region could significantly address a portion of the demand in the American market. Apple currently reports annual iPhone sales ranging from 220 million to 230 million units, with approximately one-third of those sales occurring in the United States. The transition poses significant challenges, particularly as the company approaches the production phase of the iPhone 17, which is set to be predominantly manufactured in China. Concerns have escalated within Apple’s finance and marketing divisions regarding the potential repercussions on the upcoming fall launch of new phones, leading to an atmosphere of apprehension.
The company faces a significant challenge in the coming months as it aims to shift a substantial portion of iPhone 17 production to India or alternative locations. The company would have likely needed to raise prices — a possibility that remains on the table — and negotiate with suppliers for improved margins. Apple’s renowned marketing strategy would have needed to persuade consumers of the value in the offering. However, the sentiment of uncertainty persists. Anticipated shifts in White House policies could compel Apple to implement more significant changes in its strategy. Currently, management is experiencing a moment of relief.
Another concern arises regarding the potential repercussions: Should Apple accelerate its production shift away from China, what measures might the country take in response? Apple derives approximately 17 percent of its revenue from the country and maintains a significant presence with dozens of stores, positioning itself as an outlier among US-based corporations. An Apple representative refrained from providing any comments. China has initiated competition inquiries targeting US companies, potentially posing challenges for Apple amid its customs procedures. In a significant move, the organization has implemented a ban on iPhones, along with various other US-designed devices, for its extensive workforce of government employees. This development comes in the wake of a US enforcement action against Chinese technology leader Huawei Technologies Co.
Apple’s flagship product, the iPhone, continues to be its primary revenue generator, with approximately 87 percent of production taking place in China, as reported by Morgan Stanley estimates. Approximately 80% of iPads are manufactured domestically, alongside 60% of Mac computers. Collectively, these products account for approximately 75 percent of Apple’s annual revenue. The company has shifted its production strategy, now manufacturing nearly all of its Apple Watches and AirPods in Vietnam. Production of certain iPads and Macs is taking place in that country, with an expansion of Mac manufacturing operations underway in Malaysia and Thailand. According to estimates from Morgan Stanley, the company derives approximately 38 percent of its iPad sales from the United States, alongside nearly half of its revenue from Mac, Apple Watch, and AirPods.
A total separation from China, which has served as Apple’s manufacturing center for many years, appears improbable. Despite Trump’s advocacy for Apple to shift iPhone production to the United States, the current shortage of domestic engineering and manufacturing expertise presents significant challenges that render such a transition nearly unfeasible in the near term. The facilities in China are unparalleled in their size and scale, resulting in unmatched speed and efficiency in operations. China’s production plays a vital role in Apple’s global sales strategy, extending well beyond the United States. The company headquartered in Cupertino, California, generates approximately 60 percent of its revenue from international markets, outside of the Americas.
Following the announcement of a series of tariffs on April 2, lobbyists representing Apple and various technology firms have been actively seeking exemptions from the White House. The recent discussions have gained heightened urgency following a series of retaliatory measures between Washington and Beijing, resulting in duties on imports from China reaching an unprecedented 145 percent. The potential impact became increasingly pronounced following Trump’s decision to suspend higher tariffs on additional countries. Consequently, Samsung Electronics Co., a competitor of Apple that manufactures its smartphones outside of China, would have gained a competitive advantage.
Apple and several other corporations have communicated to the Trump administration their willingness to enhance investment in the United States. However, they emphasize that relocating final assembly operations to the country offers minimal advantages. They contend that the United States ought to prioritize the revival of higher-value employment opportunities and stimulate investment in sectors such as semiconductor manufacturing.
