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Apple Inc. has managed to avoid the most serious threat to its business since the COVID-19 pandemic. The administration of US President Donald Trump has cancelled the increased duties on the company’s main products manufactured in China, Bloomberg reports.
After the introduction of new 125% tariffs on Chinese goods, there was a real threat of price increases for iPhones, iPads, Macs, Apple Watches, and AirTags. However, on Friday evening, the White House announced an exception for Apple products – these goods will not be subject to the new duties.
This was a major victory not only for Apple, but also for the entire consumer electronics industry, which is still heavily dependent on production in China.
“This is a great relief for Apple,” said Amit Daryanani, an analyst at Evercore ISI, “The duties could have led to a significant increase in costs and price inflation.”
What is left under the duties?
Despite the cancellation of tariffs on gadgets, a new 20% duty remains in place on goods from China, and a separate sectoral tariff may be introduced for products containing semiconductors.
Prior to this decision, Apple was already preparing to take radical steps, including moving iPhone production for the US market to India. Factories in this country could produce more than 30 million smartphones a year. However, a quick and complete withdrawal from China does not seem realistic for the company at the moment.
China remains critical
According to Morgan Stanley, about 87% of iPhones and 80% of iPads are still produced in China. Together, these products generate about 75% of the company’s annual revenue. In addition, Apple receives 17% of its revenue from the Chinese market.
At the same time, the company has already moved the production of Apple Watch and AirPods to Vietnam, and part of the Mac production lines to Malaysia and Thailand.
However, China remains a key centre for Apple’s global production, given the scale, speed and efficiency of its local factories.
What’s next?
Apple still expects further turbulence, both at the level of US policy and in relations with China. A complete withdrawal from Chinese jurisdiction will require enormous costs and time, and any changes in tariff policy may force the company to reconsider its plans.
At the moment, Apple has received a serious pause and relief for its business, but the issue of geopolitical risks and diversification of production for tech giants remains as relevant as ever.
