Apple suppliers are reportedly considering moving iPhone production out of China if US tariffs on smartphone imports hit 25%, although the current production model will stay in place if the US levies only a 10% tariff on handsets. People familiar with the discussions tell Bloomberg that Apple plans to “sit tight” for the moment.
The iPhone is assembled primarily in China, and various parts suppliers are also based in the region. While giants like Foxconn and Pegatron manufacture various iPhone models, the actual parts needed for assembly come from hundreds of suppliers, many based in China. Moving the entire supply chain out of China would be a daunting task. The report says that an Apple supplier suggested alternative locations for non-iPhone production, but Apple has indicated there’s little need to make such a move for now.
Donald Trump last month said that the US could hit China with a 10% tariff on smartphones and laptops, a move that would hurt Apple’s best-selling product. The iPhone has been spared so far in the US vs. China trade war. The two countries are negotiating a trade deal that could scale back existing tariffs that were implemented this year, Bloomberg notes.
Even if Apple is spared an iPhone import price hike, there’s more bad news coming out of China. Qualcomm, who’s fighting Apple in a complex legal war, has recently won an injunction against iPhones in the region. Furthermore, the arrest and detention of Huawei’s CFO Meng Wanzhou prompted some Chinese companies to call for a boycott against Apple products. The daughter of Huawei’s founder has been released on bail in the meantime.
Should the US impose a 10% tariff on iPhone imports, Apple could eat the loss. That would amount to an earnings-per-share decline of just $1 next year, according to RBC analyst Amit Daryanani. A 25% tariff would lead to a drop of $2.50 per share, assuming Apple would absorb the loss.