Trade War: Apple May Move iPhone Production Out of China if Tariffs Hit 25%

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China has been Apple’s production base for signature products from iPhone to iPads and Macs. Most of these iPhones are made by assembly partner Hon Hai Precision Industry and shipped around the world.

Cell phones, the biggest US import from China, have so far been spared but would be hit if Trump activates the new $267 billion tariff list. In November, US President Donald Trump told the Wall Street Journal that he could slap tariffs on smartphones and laptops made in China.

Apple suppliers may consider moving iPhone production out of China if the US increases tariffs imposed on devices to 25 percent, Apple, however, will continue making iPhones in China till a tariff level of 10 percent. Migrating parts of the sprawling network they underpin will be difficult and the US company seems to be in wait-and-see mode for now. Apple’s manufacturing partners are largely beholden to the US company’s wishes.

Apple’s manufacturing partners are largely beholden to the US company’s wishes. Migrating parts of the sprawling network they underpin will be difficult and the US company seems to be in wait-and-see mode for now, one of the people said. An Apple partner has already suggested alternative locations for non-iPhone production, but the US company has indicated there’s little need to make such a move for now, another person said.

Apple, already grappling with mounting evidence that its latest iPhone line-up has failed to excite consumers, can ill-afford a sharp hike in import taxes. A 10-%tariff could result in an earnings-per-share decline of just $1 for Apple, should all its hardware sold in the U.S. be subject to the levy and the company absorbs the cost. However, a more severe scenario of a 25 %tariff – absorbed by Apple – could result in an EPS decline of about $2.50.

In his early years running Apple, Tim Cook would respond to questions about increasing manufacturing in the US by saying the skill sets in China are more conducive to producing the company’s products. However, in recent months, he has modified that view, saying in an interview this year that “it’s not true that the iPhone is not made in the United States.” Some components, like the smartphone’s glass cover, are manufactured in the U.S. and shipped for assembly in China.