President Donald Trump warned Apple that he could face a 25% paralyzing rate on all iphones sold in the United States – unless he moves production in American soil.
The president published the threat on Friday via his social account Truth, clearly indicating that he expects the flagship product of Apple to be assembled at the national level rather than abroad.
“I have informed Tim Cook for Apple for a long time that I expect their iPhone who will be sold in the United States of America will be manufactured and built in the United States, not in India, or anyone else,” said Trump. “If this is not the case, a price of at least 25% must be paid by Apple in the United States, you thank your attention to this question!”
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The declaration comes only a few days after Financial Times said that Apple Foxconn’s supplier developed a $ 1.5 billion factory in Chennai from southern India to produce iPhone screens. This is part of Apple’s wider strategy to diversify its production base far from China, stimulated both by the disturbances of the cocovio-era supply chain and the increase in American-Chinese trade tensions.
But Trump, who has long criticized the Apple’s manufacturing model, now targets the company’s pivot in India and Southeast Asia.
The apple stock drops as the markets react
Trump’s position has sparked immediate tremors in the financial markets. Apple’s shares dropped 3.6% in pre-commercial trading on Friday, causing the S&P 500 index of 1.5%. European clues also dropped after Trump published a separate threat against the European Union, offering a 50% tariff on EU property from June 1. He accused the block of having exploited the United States through “trade barriers and corporate penalties”, qualifying the commercial deficit of $ 250 billion as “completely unacceptable”.
Earlier this month, Trump alluded to his growing frustration with Apple CEO Tim Cook. “I had a little problem with Tim Cook yesterday,” Trump told an audience. “I said to him,” My friend, I treated you very well. You come here with $ 500 billion, but now I hear that you are building everywhere in India. I don’t want you to build in India.
Despite Apple’s commitment to investing $ 500 billion in the United States in the next four years, and the personal donation of $ 1 million in Trump’s inauguration in 2017, the president’s patience seems to be slim.
Why Apple cannot simply build iphones in the United States
Trump’s request confronts Apple with a dilemma which, according to analysts, has no easy solution. Building iPhones in America is not only logistically difficult but also economically unrealistic.
Apple’s dependence on Asia is deeply rooted in decades of evolution of global manufacturing. The assembly of a single iPhone includes hundreds of dozens of countries and is based on an ultra-effective supply chain that has been perfected over time, especially in Chinese cities like Shenzhen and Zhengzhou.
Analysts believe that the change in production to the United States could lead to an increase in iPhone prices by 50% or more – increase the cost of retail between $ 1,500 and $ 3,500, depending on the model. It is a high price for consumers and would threaten Apple’s competitive advantage in the world market for smartphones.
“Trump’s pressure on Apple to build the production of iPhone in the United States, because we have discussed it, this would lead to an iPhone price which is a non-starter for Cupertino and would result in prices of the iPhone of ~ $ 3,500 if it was made in the United States which is not realistic in our opinion,” said Dan Ives, analyst at Wedbush Securities.
In manufacturing circles, Shenzhen is often called to have a “brain confidence manufacturing” – a dense and interconnected group of engineers, skilled workers and suppliers that allows production to develop quickly and adapt in real time.
Cook had in the past, awarded Apple’s decision to make in China to a wide offer of highly qualified professional talents.
“China has evolved in a very advanced manufacturing, so you find in China the intersection of Craftsman competence, sophisticated robotics and the world of computer science. This intersection, which is very rare to find anywhere, this type of competence, is very important for our business because of the precision and the quality we love,” Cook told Global Forum in Guangzhou.
“The thing on which most people are concentrated if they are a stranger who come to China, it is the size of the market, and obviously it is the largest market in the world in so many areas. But for us, the number one attraction is the quality of people. The reason is because of the competence and the quantity of skills in a single place and the type of competence.
He explained that in the United States, you may have a tool engineers meeting and not fill the room, while in China, you could fill several football fields.
This infrastructure simply does not exist in the United States, even when Apple tried, the results were limited. His Mac Pro, assembled in Texas, is one of the few Apple products made in the United States, but even this machine uses components from around the world.
Trump’s “America First” agenda
The moment of Trump’s explosion is not a coincidence. Its administration continued its hard line on commercial imbalances, and the threats of Friday suggest that the prices will remain a key characteristic of its economic policy. India is currently facing a 10% reference rate on goods imported into the United States, while the rate of China is 30% – a figure that could increase again in August when a temporary reduction expires.
So far, many Apple products, including iPhones, have appreciated the exemptions from more punitive tariff levels. But with Trump threatening to revoke these protections, Apple may have to absorb the cost or transmit it to American consumers.
And the problem is not isolated for China or India. Trump’s general approach to trade means that other Apple key production countries – Vietnam, Malaysia, Thailand and even Ireland – could face similar prices, further reducing business options.
Apple at the crossroads
This means that the way is not clear for Apple. The displacement of large-scale iPhone production in the United States would require massive investments, the development of labor and total relegation of its supply chain. Meanwhile, complying with the price of 25% of Trump without moving would devastate its beneficiary margins or alienate customers.
Although Apple did not respond publicly to the pricing threat, the initiates of the industry claim that the company does not overthrow its global manufacturing strategy overnight – in particular when it only begins to evolve a significant production outside China.
Trump’s message, however, points out a hardening of the commercial policy that could force Apple – and potentially other giants of American technology – in an expensive recalibration. The president’s position also complicates Apple’s broader ambitions, including future product launches and his efforts to isolate himself from geopolitical shocks.
