Tariffs might not raise iPhone prices right away, but building the iPhone in the US almost certainly will

Date:
Wed, 09 Apr 2025 17:04:25 +0000

Description:
Apple building your next iPhone in the US would almost certainly make it more expensive, and would likely be a disaster.

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We're in the middle of a fast-developing global trade war sparked by punitive tariffs imposed by US President Donald Trump, and the casualties appear to be some of our favorite tech gadgets, including the beloved iPhone.

Prices for the iPhone 16 are unlikely to rise in the short term, though. Instead, the biggest threat to Apple holding the line on current and future iPhone prices might be the calamitous idea of Apple attempting to build its handsets in the US.

First, let's look at the question of the short-term impact of tariffs on
iPhone prices. Right now, Apple builds roughly 85% of its iPhones in China ,
a country on which Trump has now imposed a 104% tariff. China reciprocated
with 84% tariffs on imported US goods.

I've seen some analysts predicting that tariffs could cause iPhone prices to double , putting the latest best iPhones at over $2,000. However, I don't see that happening.

Hold the line

In the short term, at least, Apple won't mess with iPhone 16 prices; Apple is too invested in moving built units into consumers' hands. It's true that
Apple works on a Just-in-Time (JIT) inventory model (build only what's needed/sold), so that it does not have millions of iPhones lying around in Apple Stores and supply centers, but it does have some stocks.

And for all we know, Apple may have ramped up production and delivery to the
US in anticipation of these tariffs (Nintendo may have done just that with
its new Switch 2 ).

There are so many pitfalls to bringing all manufacturing of iPhones to the
US, including higher costs, more expensive labor, and the role of full automation, which is counter to the idea of adding more jobs.

I think it's fair to worry that iPhone 17 prices could be higher as a result
of the tariffs, but again, I think Apple will do what it can to hold the
line, and part of that has to do with its services (Apple News, Apple TV+. iCloud, Fitness+, Apple Music, etc).

If you look at Apple earnings , its fastest-growing segment, and, aside from iPhones, its most reliable source of revenue, is services. You sell services
by selling hardware, and Apple won't sell more hardware if it significantly raises iPhone prices in response to these tariffs.

There is, as I see it, though, a far greater threat to iPhone pricing, and it is related to tariffs. Trump enacted these tariffs in part to push American companies to bring manufacturing back to the US. He even believes that the US has the labor, workforce, and resources to build the iPhone in the US.

He's wrong.

Let's imagine, though, that he convinces or coerces Apple into a full-scale upheaval and transfer of iPhone production from China, India, and other countries to the US. How would that work? And what might that mean for the price of your next iPhone?

First, you need to understand that, even if the iPhone were assembled in the US, virtually all its parts would be manufactured elsewhere. A couple of
years ago, ArcGIS StoryMaps produced a fascinating infographic that showed
the manufacturing origins of each iPhone component . Here are some examples:

Battery: South Korea (Samsung)
Camera: Japan (Sony)
Glass: Australia (Corning)
Touchscreen: Greece (Boradcom)
Audio chip: Singapore (Cirrus Logic)
Gyroscope: Switzerland (STMicroelectronics)

Virtually every nation has now had a baseline 10% US tariff imposed upon it and some countries, like Japan, face much higher ones. Components shipped directly to a US-based Apple iPhone plant could cost more than the same components sent to China based on these tariffs, unless they're exempted from tariffs in return for Apple bringing its manufacturing operations to the US. They certainly won't be less expensive.

I spoke to longtime Apple Watcher and analyst Creative Strategies Chairman
Tim Bajarin about this over email, and he told me, "The idea of making
iPhones in the US is a stretch. Apples components alone come from all over
the world and then need to be assembled in the most cost-effective way. This
is why the US lost manufacturing in the 1960s to countries like Japan and eventually China."

Most electronics are like this, built piecemeal around the world and
assembled centrally in the most cost-efficient place.

Bajarin adds, "There are so many pitfalls to bringing all manufacturing of iPhones to the US, including higher costs, more expensive labor, and the role of full automation, which is counter to the idea of adding more jobs."

The majority of iPhones are still assembled by Foxconn in Shenzen, China,
where employees make a little less than (in US dollars) $3 an hour . US
workers would expect to make at least the minimum wage ($7.25 federally); and if factory workers are unionized, they would likely earn more and expect benefits.

It's hard to imagine how building an iPhone in the US, with US employees
making fair wages, would not be more expensive than building it in India or China.

Apple's plan

Apple has not spoken directly about the tariffs or how it will respond to
them (I've asked Apple for comment), but it has committed to investing $500 billion in constructing facilities and hiring employees in the US. Notably, none of that work is for factories that can build iPhones. Instead, the facilities will build servers that support Apple's big Apple Intelligence
push and other AI cloud computing efforts.

Ultimately, the shorter-term existential threat to the costs of our iPhones
is not these tariffs: it's the idea that anyone should build them in the US. It's a bad plan built upon false premises. I think Apple knows this, which is why it's not happening and, for now at least, why your iPhone prices might
hold steady.

Will you pay more for your next iPhone?

If the tariffs lock in and last through this year, that might change. Apple could do its best to hold the line, and even take a loss on the iPhone 17 in order to continue growing its user base and services audience. That's not a sustainable long-term plan, though, and at some point, I suspect even Apple will say, "We have to pass some of this pain along."

As for consumers, they, at least anecdotally, seem somewhat willing to pay a little more for iPhones. In a poll on X, I asked if people would pay more for their next iPhone. A little more than half predictably answered 'No', but almost 35% checked 'It depends how much.' iPhone fans will endure some pocketbook pain to get their favorite phone, as long as it's not too much.

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Link to news story: https://www.techradar.com/phones/iphone/tariffs-might-not-raise-iphone-prices- right-away-but-building-the-iphone-in-the-us-almost-certainly-will

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