The world’s most valuable company, Apple, has its biggest manufacturing base in China. It is now being forced to strike a delicate balance between its cheap manufacturing base in China and access to sell its products in its biggest market which is the US, as both countries are spiralling into a widespread tariff war.
While the US has temporarily paused its tariffs on Canada and Mexico, it has not done the same for China which is now facing a new 10% levy on Chinese-made goods.
Apple’s most valuable commodity, its iPhones, are primarily manufactured in China, and its Q4 iPhone sales worldwide already dropped 1% to A$111.16 billion.
Apple’s rival Samsung meanwhile, which was the second-largest smartphone vendor behind Apple last year, makes most of its devices outside of China in places like Vietnam and India.
For now, Samsung has steered clear of the tariff dilemma. Apple has expanded its product manufacturing to India, Brazil and Thailand over recent months, but it hasn’t been able to completely decouple from its China manufacturing dependence.
Apple does not want to concentrate as much as 80% of the world’s iPhone production in a single country.
It has eventual plans, according to analysts, for a quarter of all iPhones to be made in India by 2025, and for this to rise to 50% by 2027.
In Trump’s first term in office, Apple successfully obtained an exemption to iPhone tariffs by arguing Samsung would benefit – it’s not clear if it will be able to do the same thing this time around.
Apart from manufacturing shifts, Apple is also facing the prospect of having to raise the prices for its smartphones sold in the US due to the tariff wars. Simultaneously, it is also facing sluggish sales of its latest iPhone 16 devices in China as Apple Intelligence remains banned in the country due to regulatory hurdles.
In China, overall revenue fell 11%, driven by a decline in iPhone sales. Increasing competition from Chinese smartphone manufacturers is further pressuring Apple’s business in the country. “This past quarter was particularly remarkable for the largest Chinese smartphone vendors: Xiaomi, Oppo, Vivo, Honor, Huawei, Lenovo, realme, Transsion, TCL, and ZTE. They achieved a historic milestone as they shipped the highest combined volume ever in a quarter, representing 56% of the global smartphone shipments in Q4,” said Francisco Jeronimo, vice president for EMEA Client Devices, IDC.
As part of the latest retaliatory measures adopted by China, it also announced 10-15% tariffs of certain imports from the US, but more significantly it announced it was opening an anti-trust investigation into Google. Apple could see those investigations engulf its App Store too which is already under scrutiny in Europe.
“The hardware part is not the worrisome part — it’s the backlash toward Apple because of an increase of anti-US rhetoric,” said Bloomberg Intelligence technology analyst Anurag Rana. “The bigger issue is the scrutiny of the App Store, which is a longer-term problem for one of the company’s most profitable businesses.”
If Apple does not want to increase its hardware price, it could look at increasing some of its software and subscription prices to offset the additional costs that arise as a result of tariffs.
Apple’s services business, which includes digital offerings and online subscriptions, generates A$159 billion annually and remains unaffected by tariffs.
For the current quarter, Apple hasn’t yet forecasted a material impact on its business. It expects sales to grow by a percentage in the low- to mid-single digits.
