Trump issues exemptions after tariffs take a bite out of Apple

Cook and Trump

Despite Trump's policies being at odds with many of Apple's core values—notably on carbon emissions reduction—Cook felt Trump would be less punitive than his predecessor Joe Biden, whose administration had pursued Apple over antitrust concerns (the same charge was brought against many other major US tech giants).

Seeking to avoid mounting legal and regulatory pressure, Cook bet on Trump and attended his January inauguration ceremony alongside other tech executives from Amazon, Google, and Meta. During Trump's first term, Cook was a regular at the White House but was much less so during the Biden years.

Cook protected Apple from Trump's first tariffs on China by arguing that such duties on Apple products would ultimately benefit foreign competitors. He also noted how certain products, such as smartwatches, help Americans monitor their health.

Apple has shifted some of its production from China to countries like India, but this is not a quick or easy process—it took five years to build the necessary infrastructure and train a local workforce capable of producing the latest iPhone models. Apple wants Indian factories to make around 25% of the 200 million iPhones it sells annually.

As part of its broader supply chain diversification strategy, Apple also began relocating the assembly of other products—like iPads, MacBook Airs, and AirPods—to Vietnam, which now plays a key role in its global supply chain. Vietnamese factories now account for more than 10% of Apple's top 200 suppliers.

Absorb or pass on?

Tariffs mean absorbing additional costs or passing them on to consumers. Had Trump's initial volley of tariffs come in, the price of an iPhone 16 model would have gone from £799 to £1,142 (a rise of nearly 43%) if Apple passed the cost on to customers. Likewise, the iPhone 16 Pro Max would have gone from $1,599 to around $2,300.

Cook's $500bn package of investments, which he unveiled in February, is more in line with Trump's 'America First' agenda. This included the creation of 20,000 jobs, a new server manufacturing plant in Houston, and a new technology academy in Michigan. The idea is to localise Apple's supply chains and strengthen its role in the AI revolution.

Efforts to Americanise Apple production have been made before, once hitting a memorable stumbling block: the humble screw. In 2012, Apple said it would make the Mac Pro in Texas, the first significant company product to be 'Made in America' for years, yet a shortage of specialised screws scuppered plans. While they were easily sourced in China, American factories struggled to meet the demand.

The New York Times revealed that when Apple needed 28,000 of these screws, a company in Texas had to reactivate dormant machinery to fulfil the order, delivering the screws in 22 separate shipments—some reportedly via in an old Lexus. Factory owner Stephen Melo captured the irony, saying: "It's hard to invest in making components in America when you can buy them so cheaply from overseas."

Ability to mobilise

It revealed the fragility of American industrial infrastructure, its shortage of skilled labour (particularly in fields such as engineering and advanced industrial technologies), and its inability to keep pace with the demands of modern manufacturing. "In China, you could fill multiple football fields with tooling engineers," said Cook in 2018. "But in the US, you could call a meeting of tooling engineers, and I'm not sure you'd fill the room."

Chinese factories are now near-militarised operations running 24/7, with workers even woken from their sleep to meet urgent demand. Companies like Foxconn can easily mobilise tens of thousands of workers overnight. In contrast, American facilities remain bound by labour laws, higher wages, and a culture of workers' rights.

"China is not just cheap; it is a system that can mobilise 100,000 people to work through the night if needed," says economist Susan Helper, contrasting the slower-moving US market governed by traditional supply and demand dynamics.

Wage disparity between China and the US is stark. An iPhone assembly line worker in China typically gets less than $3 per hour, while the average assembly line worker in the United States is paid around $12.40 per hour. Yet relocating all manufacturing operations to the US is not only a financial decision. It would require significant infrastructure development and the training of a skilled workforce. 

Decisions to make

This leaves Apple—a company long seen as a benchmark in global supply chain management—at a crossroads. Apple has spent decades building an extensive network of suppliers and manufacturing hubs across Asia, latterly reducing its reliance on China as a primary production centre. But American protectionism now risks the entire edifice.

Apple is not alone in its concern. The principles of globalisation have been relied upon by American corporations for decades. Yet Trump's efforts to "bring manufacturing back to America" could end up costing US companies more than they would stand to gain, ultimately undermining their global competitiveness, with customers delaying or forgoing their purchase of the latest devices.

For now, Apple seems to have gotten a tariff exemption like it did during Trump's first term, but this administration has proved to be volatile, so it would be wise for it to have other strategies up its sleeve.

If, for some reason, things change yet again, Apple could choose to absorb part of the added costs rather than pass them on in full to consumers, particularly for high-margin products. It may also delay certain product launches, adjust production lines to reduce reliance on tariff-hit states, or reduce the number of product variants.

In the medium-term, it could deepen partnerships with domestic US suppliers for the local production of components such as chips, spare parts, and packaging without needing to shift final assembly operations entirely. It could also redistribute segments of its production lines to countries not affected by the tariffs.

System review

Increasing Apple's investments in automation and robotics could open the door to more domestic manufacturing since automation lessens the burden of higher American labour costs. Alternatively, Apple could reimagine its entire global manufacturing model, moving to a more flexible, multi-hub production system from its current reliance on a single manufacturing centre.

In essence, this means reorganising to create a geopolitical safety net, such as working with governments that provide direct support (including tariff exemptions or infrastructure investment) and setting up joint ventures in countries aligned with US trade interests.

Apple may adopt a 'local assembly from global components' model, where parts are produced in various countries, but final assembly takes place in tariff-free zones such as the United States or nations with free trade agreements. 

That will sound daunting to a company renowned for its strategic caution and painstaking attention to detail, especially in supply chains—its operational lifeblood. Slow to adapt, it also rarely makes mistakes. These are big decisions. A misstep could cost billions and incur the wrath of a president for whom strategic caution and painstaking attention to detail are not high on the list.