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Trump’s tariffs are aimed at China, but Apple is in the line of fire

The tech industry is bracing for impact as the latest round of tariffs works its way through Washington

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President Trump Signs Executive Order For New Sanctions On Iran
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For 40 years, US tech companies have been sending designs to China for manufacturing. Drones, microchips, phones, computers — nearly anything with complex internal circuitry passes through a Chinese port at some stage of the process. By now, it’s less about cheap labor than the confluence of dozens of component manufacturers, chip foundries, and assemblers all competing with each other for the biggest contracts and the most demanding jobs. We think of the iPhone era as a product of Cupertino, but it’s just as much a product of Shenzhen.

Now, that trade route is coming apart. Since taking office, President Trump has staged an escalating trade war with China, citing decades of anti-competitive behavior. In May, that fight reached a breaking point, with a new proposal laying out a 25 percent import tax on nearly all consumer goods imported from China. Reached for comment, neither the White House nor the US Trade Representative was able to shed light on when the proposal might go into effect, but with the last public hearings finishing today, the tariffs could be legally put in place as soon as next week.

That looming threat has put every company with factories in China into crisis mode, both pleading with the government to call off the disaster and scrambling to protect themselves from the fallout. Over the past two weeks, some of the biggest companies in the US — including Apple, Microsoft, and Intel — have all filed comments with the US Trade Representative, making the case for a carve-out. For the tech industry, in particular, the filings paint a dire picture of what will happen if the tariffs go into effect, a picture analysts largely agree with.

Officially, the new tariffs target $300 billion in previously untaxed imports from China. But because previous rounds had focused on intermediary goods, the result is new duties on nearly all Chinese consumer goods, with only minor carve-outs for pharmaceuticals and rare earth elements. Major products like phones, computers, and televisions, which were largely left out of previous rounds, would be hit by the latest round, with immediate consequences for shipments departing Chinese ports. For tech companies, it’s a disaster in the making, severing long-standing supply chains and plunging entire categories into chaos. The Consumer Technology Association estimates that the tariffs would result in price increases of roughly $70 for each cellphone coming in, with laptops costing as much as $120 more.

“Once you hit 25 percent, your product is no longer competitive.”

Those hikes are particularly catastrophic for price-sensitive products like TVs, where razor-thin margins force companies to pass along the tax to consumers, and even a $20 price jump could push shoppers over to a competitor. In many cases, the tariffs could force companies to simply write off the US market. “When you’re looking at 5 or 10 percent tariffs, in many cases you’re simply absorbing the hit,” says tech analyst Avi Greengart, founder of Techsponential. “Once you hit 25 percent, your product is no longer competitive, especially when there are alternatives on the market that are not being hit with these tariffs.”

The tariffs are also a nightmare for companies like Apple, which has higher margins but more fragile supply chains. Apple is already scrambling to avoid future China tariffs by building manufacturing facilities in India and Vietnam, but it will be years before those facilities can handle the tens of millions of iPhones that are sold in the US each year. In its own filing, the company said simply that the taxes would “weigh on Apple’s global competitiveness.”

Apple is uniquely vulnerable because of the intricacy of assembling smartphones, which makes it hard to start a new supply chain from scratch. “The scale and the complexity of putting together an iPhone or any smartphone is just very, very challenging,” says Moor Insights analyst Patrick Moorhead. “In a year, you could have those new facilities building notebooks, but I wouldn’t even want to speculate how many years it would take to build the same capability for smartphones.” As a result, Apple may simply have to eat the cost of the tariff for however long it lasts.

“Apple would be hit incredibly hard.”

At the same time, Apple is uniquely wedded to both Chinese manufacturing and US markets, a brutal combination if any kind of smartphone tariff is put into effect. Samsung assembles in South Korea and Vietnam, while companies like LG can forestall the hit to US exports with sales to Asian or European markets. “Samsung or LG really won’t be hit that hard,” Moorhead says, “but Apple would be hit incredibly hard.”

Even if higher prices don’t make Apple fans switch to Android, it could make them hold on to their phones a little longer, speeding up a trend that’s already underway in US markets. “A consumer who is looking at an iPhone that suddenly costs $150 more might simply wait another year before buying an iPhone,” Greengart says.

That kind of slowdown can have effects that echo through the entire ecosystem, and it’s not limited to Apple. Sony, Nintendo, and Microsoft joined together as game console manufacturers for a similar filing, worrying that tariffs will slow down sales across the US. Roughly 96 percent of consoles are made in China, often at razor-thin margins. “Given that retail margins on video game consoles are generally very tight,” the companies wrote, “we see no possible reasonable scenario for retailers other than passing tariff costs down to consumers.”

They were joined by a separate filing from ZeniMax, parent company of Bethesda, Arkane Software, and Machine Games, which argued that the tariffs would hurt the software side of gaming too. Fewer Americans buying consoles means fewer Americans playing games, pushing developers to focus more on overseas audiences. “For ZeniMax in particular, this would be especially harmful given that a majority of our global sales come from our console game sales here in the United States,” the company wrote in its filing. Game development employs roughly 65,000 people in the US, which is more than durable manufacturing and coal mining combined. Facing intensely price-sensitive customers, the effect on those jobs could be unpredictable.

“This tariff would result in a competitive advantage for Chinese device makers.”

Fitbit said the tariffs could actually make the US market for fitness trackers more vulnerable to Chinese competitors like Huawei and Xiaomi, which have recently moved into the space. All three companies assemble their products within China, but only Fitbit relies on the US market to stay afloat. As a result, the tariff would hit Fitbit the hardest, and it could make it even harder for the company to remain dominant in the US. “Fitbit believes that this tariff would result in a competitive advantage for Chinese device makers in the US market,” the company argued in a USTR filing, “and implicate national security concerns by placing sensitive US health, location, and financial data within the Chinese government’s reach.”

PC makers raised similar concerns in a joint filing from Microsoft, Dell, Hewlett-Packard, and Intel. The companies described the tariffs as “a windfall to manufacturers based outside the United States” for the simple reason that those companies sell more products outside the US. As long as everyone keeps manufacturing in China in the short term, a US tariff on Chinese imports becomes a de facto tax on companies shipping products to the US. That’s a huge problem for Dell, which gets nearly a third of its revenue from US laptop sales. But for Lenovo, that number is just 15 percent. 

“Because our foreign competitors are less dependent on US sales,” the companies complain, “they would be less severely impacted by new tariffs and would be well-positioned to continue investing in R&D during a time when our companies will be forced to reduce R&D expenditures to offset the increased tariff burden.” 

Still, the PC market may be better prepared than most parts of the industry. Assembly for computers is less intricate than for mobile devices, which has allowed many manufacturers to leave China for areas with a cheaper labor force. “HP, Dell, and Lenovo have some very broad supply chains,” Moorhead notes. “They’ve been working for a year to move final manufacturing out of China and into places like Indonesia, Mexico and Eastern Europe.” Dealing with a 25 percent tariff would still mean a huge shift in production, but not everyone would be starting from zero.

The biggest question is still when and how the tariffs will go into effect, and the White House is giving few hints. The best bet is that talks with China will resume at the G20 summit, which begins on Friday. But Trump’s impulsive nature makes it hard to predict the outcome. Exempting phones or computers from the tariffs would mean a massive reduction in the scale of the tax, a major concession from the US. That kind of concession is possible, but after years of escalation, angry retaliation seems just as likely. That uncertainty leaves much of the industry hanging in the balance and bracing for the worst.

“We have seen similar tariff talk be averted with Mexico, but geopolitics is tricky and Trump is unpredictable,” says Greengart. “The biggest issue right now is that this may actually happen.”

Correction: A previous version of this article incorrectly identified Zenimax as the parent company of Epic Games. The Verge regrets the error.