iPhones to Get Hit with 15% Tariff as U.S.-China Trade War Escalates

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Things are heating up again in the U.S.-China Trade War. Despite U.S. President Donald Trump’s recent praise of Tim Cook’s compelling arguments against iPhone tariffs, the Trump Administration appears determined to not only still slap a tariff on Apple’s smartphones come December, but in fact is planning to raise the stakes even further.

Last week, Trump tweeted threats to increase the U.S. tariffs on all electronics coming in from China by an additional 5 percent, bringing the tariff on the iPhone — still expected to come into effect on December 15th — up to 15 percent.

According to Reuters, Trump’s threats have now been made official, with a notice from the U.S. Trade Representative’s Office (USTR) that “collection of a 15% tariff will begin at 12:01 a.m. EDT Sunday” on the first portion of the list — the part that excludes iPhones, iPads, and MacBooks but not other products like iMacs or AirPods.

The remainder of the $300 billion list — which includes the iPhone — will see the 15% tariff start being collected on Dec. 15.

Further, certain Apple accessories like cables and chargers that have already been facing a 25% tariff since earlier this year, will see their tariffs jump to 30%, as indicated by another recent tweet from the U.S. President. Although the USTR hasn’t officially published this notice yet, a spokesman told Reuters that it will be coming.

Could the iPhone Still Escape?

Despite these announcements, the actual tariffs on the iPhone aren’t set to come into effect for another three and a half months, and a lot could change between now and then.

In fact, the official reason given by the U.S. Trade Representative for delaying certain product categories, which include the iPhone, iPad, and MacBook, is for a “public comment and hearing process,” and there’s no doubt that Apple is going to continue to make a case for why the iPhone should be excluded.

It’s also important to keep in mind that tariffs are levied on categories of products, and not specific individual products. So far, the iPhone has escaped tariffs because the Trump administration has agreed to exclude the entire smartphone category from tariffs. By extension, this allows other Chinese-made smartphones to avoid tariffs as well. So this week’s announcements aren’t saying anything specific about Apple’s products, but merely that the categories that happen to include Apple’s products will still be subjected to tariffs.

While the capriciousness of U.S. President Donald Trump often makes it difficult to know what his plans are, last week he met with Apple CEO Tim Cook, telling reporters afterward that Cook made a good case for why the iPhone needs to be excluded — notably that Apple would be placed at a disadvantage to its main rival, Samsung, which does not manufacture its products in China. Trump subsequently called Cook a great executive, saying “I gotta help him out short-term,” while at the same time ordering U.S. companies to move their businesses out of China.

Further, while Trump appears to be somewhat sympathetic to Apple’s concerns regarding the iPhone — likely partly due to the Samsung argument — he’s made it abundantly clear that other Apple products won’t get any tariff breaks.

Is Apple Moving Out of China?

Although reports earlier this year suggested that Apple has begun moving production out of China for some of its products, a much more recent analysis by Reuters reveals that this may not be entirely the case.

While true that Apple has moved some of its manufacturing to Brazil and India, the analysis notes that its supply chain data shows that it still has a very heavy dependence on China — even moreso than most other U.S. firms. The factories Apple has set up in other countries are considerably smaller, and in some cases have only been created to meet domestic demand in those countries.

Meanwhile, Apple has still been adding more locations in China, with Reuters noting that Foxconn alone expanded from 19 locations in 2015 to 29 locations in 2019, and its second-largest supplier, Pegatron, going from eight to 12 in the same timeframe. This has largely been driven by more recent new products being added to Apple’s lineup.

Further, almost half of Apple’s component suppliers — companies that provide things like chips, glass, aluminum casings, and more — are located in China, and have become even more concentrated in China over the past four years.

The challenge for Apple in moving business out of China is the staggering demand for its products compared to those of many companies. This is the common argument against moving iPhone production to the U.S., but in reality it applies to just about anywhere other than China. In this case, the popularity of the iPhone works against Apple, as there are few other places in the world that have logistics, infrastructure, and labor base to produce hundreds of thousands of iPhones a day.

Reuters notes that Apple declined to comment on its analysis, and Tim Cook has repeatedly tried to downplay Apple’s dependency on China, telling investors last month that he “wouldn’t put a lot of stock into” speculation about how Apple will shift production due to the U.S.-China trade war, and adding that “The vast majority of our products are kind of made everywhere.”

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