Apple Inc. is feeling the squeeze as the U.S.-China trade war intensifies. The technology giant, which has been actively diversifying its supply chain away from China for several years, is now facing significant challenges that could impact its pricing strategies and market presence. Analysts have repeatedly sounded alarm bells that the company is too dependent on Chinese supply chains. This reliance, when paired with increased tariff rates, will force Apple to decide where to focus their production and future costs.
In 2020, Apple delivered a staggering 77 million iPhones to the United States. Nearly four out of five of those devices—79%—were made in China. The cumulative tariff rate on Chinese goods is at an all-time high of 145%, inflicting additional economic burden on the company. Without changes to the current tariff structure, analysts expect Apple to soon be raising prices on any phones imported from China. If so, they still project the price increase will be at least 85%. Consumers may be hit hard with a huge increase in expenses. An iPhone could jump up to $3,500, from its current typical price point of $1,000.
To counter these risks, Apple has been moving away from China and investing in its manufacturing capacity in India. In a notable shift, Indian manufacturers began making Apple’s high-end Pro and Pro Max iPhone models. This unprecedented creation started in 2020. Apple’s first successful shipping of 600 tons of iPhones manufactured in India to the United States. This shipment amounted to approximately 1.5 million units, finished mere days before the new tariffs went into effect under former President Trump’s administration. To increase production capacity in India to where it can accommodate and sustain demand, analysts say, would take at least one or two years.
The ongoing trade policy uncertainty in the U.S. is still the biggest wildcard for Apple. Craig Moffett, co-founder and senior analyst at MoffettNathanson, emphasized the volatility in tariff negotiations.
“Let’s assume that there is at least some thaw coming, either in a moderation of reciprocal tariffs targeting China or in a special exemption for Apple,” – Craig Moffett, co-founder and senior analyst at equity research publisher MoffettNathanson.
Despite the optimism surrounding potential exemptions, Moffett emphasized that even a baseline tariff of 10% on imports from India would pose formidable challenges for Apple. The company has cumulatively invested a record $500 billion in the U.S. This tremendous investment has resulted in the creation of 20,000 jobs. This commitment should give advocates considerable leverage in negotiations with the administration.
CEO of The Futurum Group, Daniel Newman, said he was hopeful for some sort of concession for Apple due to their large U.S. investment.
“I still see some potential relief that can come in the form of concessions for Apple based upon its $500 billion U.S. commitment,” – Daniel Newman, CEO of The Futurum Group.
Newman noted that discussions around U.S. expansion for companies like Apple could lead to positive outcomes in ongoing negotiations.
“This hasn’t been discussed much — but I’m optimistic that companies that commit to U.S. expansion may see some form of relief as negotiations progress,” – Daniel Newman, CEO of The Futurum Group.
Apple is certainly and deeply aware of the broader and more complicated geopolitical dynamics at work. Reducing medium-term exposure to tariff-related risks remains a key priority for the company. The company wants to scale up production and exports from India. Here’s how this strategy will allow it to more successfully manage the flux of U.S.-China relations.
Le Xuan Chiew, research manager at Omdia, to provide context on the current state of affairs. He continued by noting that historical tariff rates have disproportionately affected Apple’s bottom line.
“When the original China tariffs were at 54%, that kind of impact was serious, but manageable… but it wouldn’t make financial sense for Apple to raise prices based on the current tariffs,” – Le Xuan Chiew, research manager at Omdia.