Apple Inc has temporarily avoided its most significant challenge since the onset of the pandemic.
Donald Trump imposed 125% tariffs on products manufactured in China, which posed a significant threat to its supply chain similar to the disruptions caused by the Covid-19 pandemic five years earlier. However, on Friday evening, President Trump granted Apple a substantial win by exempting numerous consumer electronics from these duties. This exemption covers items such as iPhones, iPads, Mac computers, Apple Watches, and AirTags.
Yet another victory: The 10% duty on imports of certain goods from other nations has been eliminated.
Although a reduced sector-specific tariff might be applied to products containing semiconductors—and a 20% duty on China persists—the shift represents a victory for Apple and the consumer electronics sector, which continues to depend significantly on manufacturing from Asia.
This represents significant relief for Apple, according to Evercore ISI analyst Amit Daryanani in a report released Saturday. The tariffs could have caused substantial increases in production costs.
He anticipates the stocks will rebound on Monday after experiencing an 11% decline this month.
Before the latest exemption, the iPhone maker had a plan: adjust its supply chain to make more US-bound iPhones in India, which would have been subject to far lower levies. That, Apple executives believed, would be a near-term solution to avoid the eye-watering China tariff and stave off hefty price hikes.
Considering that the production capacity for iPhones in India is set to reach over 30 million units annually, this output from just one nation could satisfy a significant portion of U.S. consumer needs. Currently, Apple sells between 220 million and 230 million iPhones each year, with approximately one-third of them being sold within the United States.
Such a shift would be difficult to pull off without a hitch, especially because the company is already nearing production of the iPhone 17, which will be made primarily in China. Within Apple’s operations, finance and marketing departments, fears had grown about the impact on the autumn launch of new phones – and fuelled a sense of dread.
In merely a few months, the corporation would have faced the monumental challenge of shifting additional iPhone 17 manufacturing to India or another location. This probably would require raising prices—an option that remains viable—and negotiating improved profit margins with suppliers. Furthermore, Apple’s renowned promotional machinery would need to persuade customers that these changes were worthwhile.
However, the sense of doubt persists. The White House’s strategies could change once more, forcing Apple to consider even greater adjustments. Nonetheless, at present, the leadership is experiencing a momentary sense of relief.
87% of iPhones produced in China
A further worry is this: Should Apple swiftly accelerate its shift in manufacturing away from China, what kind of response might the nation have? Currently, Apple derives approximately 17% of its income from operations within the country and has numerous retail outlets there, setting it apart from most U.S.-based corporations. Representatives from Apple chose not to make any comments on the matter.
China has initiated investigations into competitions involving U.S. firms and might cause problems for Apple using its custom processes. Over the past few years, China has also prohibited iPhones along with other U.S.-designed gadgets from being used by government employees. This move came after the United States imposed restrictions on the Chinese technology leader Huawei Technologies Co.
The iPhone generates the majority of Apple’s revenue, with approximately 87% being manufactured in China, as per data from Morgan Stanley. Similarly, around 80% of iPads and 60% of Mac computers are assembled in the same region.
In total, these products account for roughly 75% of Apple’s yearly income. Nevertheless, the firm currently manufactures almost all of its Apple Watches and AirPods in Vietnam. Additionally, some iPads and Macs are produced in this nation, with an increase in Mac manufacturing occurring in both Malaysia and Thailand.
According to Morgan Stanley’s estimates, the company derives approximately 38% of its iPad revenues from the U.S., along with nearly half of its earnings from Macs, Apple Watches, and AirPods.
A total separation from China – Apple’s long-time production center – would be improbable. Despite Trump urging Apple to manufacture iPhones within the U.S., the scarcity of local engineering and manufacturing expertise makes this highly unfeasible in the near term.
The magnitude and scope of the facilities in China make them unparalleled in terms of speed and efficiency. Additionally, production in China plays a vital role in Apple’s global sales, particularly outside the United States. The company, headquartered in Cupertino, California, derives approximately 60% of its income from regions outside North America.
Following the announcement of a series of tariffs on April 2, lobbyists representing Apple and various tech firms have been urging the White House to grant them exceptions.
However, the talks gained additional importance recently following a sequence of reciprocal reprisals between Washington and Beijing, resulting in import tariffs reaching up to 145% from China.
The potential effect became even more pronounced when Trump halted increased tariffs on other nations. This pause gave Apple’s competitor, Samsung Electronics Co., an advantage since they manufacture their devices outside of China.
Apple and other corporations have conveyed to the Trump administration that although they are ready to boost their investments within the U.S., shifting final assembly operations to this nation offers minimal advantages. They maintain instead that the focus of the United States should be on reviving high-skilled job opportunities and promoting investments in areas such as semiconductor manufacturing.
Provided by SyndiGate Media Inc.
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