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With the U.S.-China trade simmering as Trump begins his second term, Apple will be vulnerable to the proposed China tariffs and export restrictions of critical minerals. Since Apple makes majority of its +100 products in China, it must deflect what otherwise would amount to hundreds of millions of dollars in taxes. Although Apple has shifted some production to India with the iPhone 15 (2022), Apple has yet to start fabrication in the U.S. With Trump proposing a 60% tariff on goods imported from China and a 20% levy on things made elsewhere, Apple will have to use every lever to contain costs, sustain demand, secure mineral inputs, and gain policy exemption. So, with so much at-stake, what will Apple do?
Key Takeaways:
- During the first Trump administration, Apple was able to sidestep the tariff threat, and Apple CEO Tim Cook will take a similar approach in seeking tariff relief
- Analysts expect Trump to waive Apple’s China tariffs so it doesn’t “lose to Samsung,” much like the anticipated waivers to Tesla, so it doesn’t “lose to BYD”
- With increasing Chinese export restrictions, critical minerals for broader industrial, consumer, and high tech use will have varying degrees of risk exposure
- Third party restrictions will be considered by both U.S. and China to block U.S. or Chinese companies from finding loopholes
- Under a second Trump term, ESG factors related to supply chain resilience and critical mineral production, will now be elevated to questions of natural security
Understanding Apple’s tariff economics
In the past year, the U.S. imported around $1 trillion dollars in goods and services, according to the Census Bureau. Of that, $433 billion was Chinese goods and about a tenth of those imports, $42 billion, were smartphones. Over 80% of smartphone imports come from China, and there is no substantial U.S. production.
As a reference point, the iPhone 16 starts at $799 in the U.S., but there are domestic components built into that price. In the first place, there is Apple’s product gross profit margin of 37% in fiscal 2024. Those profits are layered on top of the product’s cost and are free and clear of any tariff. Other domestic costs to iPhone production, including retailing and advertising, would be excluded from tariff calculation.
Ultimately, as estimated by Barrons, roughly 45-50% of the cost of an iPhone is imported content. Therefore, a 60% tariff on the imported portion of the price would equal a tax on Apple of roughly $216-$240 per iPhone 16, which is an effective rate of 27-30%.
Apple avoided tariffs in Trump 1.0 and will use a similar playbook
During Trump’s first administration, Apple was largely able to sidestep the tariff threat. Cook convinced Trump on the idea that an iPhone tax would benefit Samsung, Apple’s South Korean rival. He also sold the idea that the Apple Watch is a life-saving device, which at one point had a 15%, but it was reduced in 2020 by the U.S. Trade Representative (USTR). Furthermore, Apple contested that as a consumer electronic device, its watch was not “ strategically important or related to ‘Made in China 2025’ or other Chinese industrial programs.”
It’s not just tariffs for Apple, it will have to navigate critical mineral export restrictions
According to Apple’s Product Environmental Report, iPhone 16 is made from a variety of materials, including recycled and sustainable components that are verified by an independent third party to a recycled content standard that conforms to ISO 14021.
This strategy is smart to protect Apple from insecurity in its supply chain. However, Apple will still look to monitor the export restrictions closely, meanwhile diversifying its sourcing for recycled content and contending with criminal complaints in Europe of conflict minerals.
How will Apple and other U.S. firms access critical minerals without imports from China?
With the U.S.-China trade war projected to escalate under Trump’s more hawkish position, the U.S. will need to deploy incentives and financing instruments to encourage investments with “existing friends” and “new friends” to secure a supply of vital resources.
With existing U.S. reserves of critical minerals, it is possible for the U.S. and its key partners to friendshore the production of critical minerals. However, it would require an unprecedented buildout of the mining industry to achieve clean energy targets for 2030. For instance, G7 countries are focusing especially on critical minerals that are needed for renewable electricity production and batteries.
In June 2022, the United States and its G7 partners launched the Partnership for Global Infrastructure and Investment (PGII) to build clean energy supply chains. They also signed the Minerals Security Partnership (MSP) to produce, process, and recycle critical minerals.
Expect these multi-lateral approaches to mineral security to continue, with or without the U.S.’s participation, which some fear given Trump’s reluctance to alliances.
Apple’s playbook to beat Samsung, thrive in Trump 2.0 tariffs and trade wars
Apple made it through Trump’s first round of tariffs successfully, here’s what it will likely do as the trade tensions increase in Trump’s second term:
- Continuously assess tariff (includes levies and duties) exposure risk across China, as well as Canada, Mexico, and BRIC countries
- Advocate for tariff exemption by linking company success to U.S. national security as well as for competitor placement on S. entity list managed by the U.S. Department of Commerce of foreign firms banned from trade with U.S. companies
- Partner with the incoming administration as it re-evaluates its national supply chain security policy and implications for national economic performance across U.S. agencies, industries, and allies
- Evaluate supplier optionality across assembly nodes, in China as well as ASEAN, India, and U.S. and advance long-term China+1 diversification strategy by hastening production in India and elsewhere
- Embed Sustainability design principles to address resilience, climate risk, emissions reductions, supply chain traceability, non-voluntary reporting factors, and human rights
- Assess exposure to China export restrictions for critical minerals and create thorough input specific contingency plans, evaluate third party procurement options, continuously refresh assessment
- Advocate to U.S. policymakers to amplify ally nearshoring strategies and foreign investment in critical mineral reserves and suppliers
- Address criminal complaints over the use of conflict minerals raised in Europe about extraction of conflict minerals in the Democratic Republic of Congo and potentially other sources of minerals. Ensure accurate reporting and adherence to human rights policy and standards
- Continue with aggressive mineral recycling and upcycling strategy to build self-sustaining and self-managed mineral ecosystem in accordance with international circularity standards, especially for Cobalt. Will Daisy live up to its promise?
Forget the backlash, ESG factors are elevated in addressing critical National Security questions
As Trump’s second administration challenges ESG investing, climate policies, the EPA’s authority, State-level legislation, and more, practitioners in the Climate, Sustainability, and ESG are repositioning their efforts under the broader umbrella of national security. Supply chain resilience, human rights issues, and transparency aren’t just items in a corporate ESG report, they are also major questions as the U.S.-China trade conflict emboldens.
As companies look to reconfigure supply chains and improve resilience overnight, questions on traceability, human rights, emissions, and critical minerals (all managed under an ESG framework) have been emboldened by the national security prerogative. As critical minerals receive more bi-partisan support from the U.S. Congress, U.S. allies, G7, etc., expect other ESG and Sustainability threads to be connected to supply chain resilience and national security.
Questions for the boardroom:
- What steps have we taken to identify Chinese export ban exposure on critical resources and minerals? What is our current degree of exposure to shocks in input accessibility?
- How have we accounted for shifts in demand factors within an intensifying environment of trade war escalation?
- What are the criteria for a component and/or final product from China to be considered essential for national security and economic prosperity?
- How can we improve supply chain traceability and reporting automation?
- To what extent do we face exposures to other import tariffs and levies from Canada, Mexico, and BRIC countries?
- How do we reconfigure and improve supply chain agility over the next 12 months? 24? 36? What do we need to solve today vs. in the next 2-3 years?
- What is an appropriate lead time to diversify critical mineral suppliers?
Additional Telesto resources:
- Board Series: Preparing for China’s retaliation to Trump 2.0 tariffs
- Board Series: Trump 2.0 tariffs and preparedness for Industrial companies
- Preparing for climate litigation: What board members need to know
- Navigating corporate climate action under a second Trump administration – 7 focal points for business leaders
- Faros, our climate risk assessment tool, helps your organization identify emerging climate threats as they become more common and disruptive and position your assets to protect operational continuity, hedge against rising insurance costs, meet regulatory disclosure requirements, and incorporate climate risk into asset acquisition and disposal.
- Prism, our ESG benchmarking tool, helps your organization to rapidly strengthen its sustainability, climate, and ESG performance and disclosures through in-depth benchmarking of industry peers and identification of gaps and areas of distinction
