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Why Import Tariffs on China Unlikely to Prompt Apple to Shift iPhone Production to the U.S.

SAN FRANCISCO — The Trump administration believes it will prompt Apple to start iPhone production in the United States for the first time due to its widespread tariffs on Chinese goods. Yet, considering the circumstances, this seems unlikely. U.S tariffs on products made in China now sit at 145%. Apple has relied on China for iPhone manufacturing since its launch 18 years ago.

The incentives for Apple to keep Chinese production are strong. Apple has spent many years and billions of dollars in developing its supply chain in China. It would take years and an infusion of billions more to set up new facilities in the U.S., only to confront Apple with forces that could triple the price of an iPhone, threatening its sales.

Apple’s production shift domestically is not an option, according to Wedbush Securities analyst Dan Ives. He estimates the price of an iPhone would increase up to $3,000. Ives believes Apple can’t shift production until 2028 at the earliest. “Price points would move so dramatically, it’s hard to comprehend,” Ives added.

Apple has not responded to a request for comment, but the topic may arise on May 1 when Apple CEO Tim Cook speaks with analysts during a quarterly conference call.

After Trump began increasing tariffs on April 2, the company’s stock price dropped by 15%, causing the market value to decrease by $500 billion.

Apple needs to raise the iPhone prices eventually due to the tariffs because the Silicon Valley supply chain is largely concentrated in China, India, and other overseas markets targeted by the trade war. The key issue is how long Apple can keep current prices while bearing the tariff-induced cost increases before shifting the burden to the consumer.

Like Apple, other technology companies are heavily reliant on China for production. Apple continues to reap huge profit margins from its products’ subscriptions and other services, unaffected by the tariffs.

“Apple will absorb some the tariff-induced cost increases without significant financial impact, at least in the short term,” said Dipanjan Chatterjee, an analyst at Forrester Research.

In February, Apple declared plans to invest $500 billion in the U.S. and hire 20,000 people. None of this investment was for iPhone manufacturing. The investment is instead for a Houston data center for powering artificial intelligence.

Leavitt, White House Press Secretary, stated the $500 billion investment and hiring of 20,000 people would not have been possible if Apple didn’t believe it could be done in the U.S. “It’s a sign that the company believes the U.S. can manufacture its products.”

Commerce Secretary Howard Lutnick also believes the tariffs will prompt manufacturers to shift production to the U.S. “The army of millions, i.e., human beings, who are screwing in little screws to make iPhones, that kind of thing is coming to America.”

During Cook’s appearance at a conference in China, he questioned the availability of skilled workers in the U.S. required to assemble iPhones, “In the U.S., we could fill a room with tooling engineers. But in China, we could fill multiple football fields.”

Read More: Chinese State Media Rebuke Trump’s Tariffs With AI Song and Video

Trump has tried to exert pressure on Apple before. But in the end, the administration exempted the iPhone, despite announcing investments of $350 billion in the U.S. During his first term as president, Trump still imposed tariffs on China, which ultimately prompted Apple to start production in India and Vietnam for some iPhone models.

In 2019, Cook took Trump on a tour of Apple’s Mac production plant in Texas. Shortly after, Trump took credit for the plant that Apple opened while Barack Obama was president. “Today I opened a major Apple Manufacturing plant in Texas that will bring high-paying jobs back to America,” Trump posted on Nov. 19, 2019.

Source: https://time.com/7276647/apple-iphone-made-in-usa-china-tariffs-trade-war-manufacturing/

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