Trump’s tariff blitz drives Apple to increase production in India

SAN FRANCISCO, NEW DELHI: Apple has ramped up its shipments of iPhones from India to the US in response to the significant tariffs imposed by former President Donald Trump, marking one of the most formidable challenges to the company’s operations in recent years, reported the Financial Times.

In the wake of Trump’s “liberation day” announcement, at least 10 flights have been recorded departing from Chennai International Airport, according to three Indian officials familiar with the situation.

To mitigate the immediate effects of the US president’s aggressive tariffs targeting China, Apple is strengthening its ties with India, having been unable to secure an exemption from the 104 percent tariff that took effect recently. According to two officials, Apple is contemplating further investments in India. Apple, however, has opted not to comment on these developments.

The company is facing significant financial repercussions due to Trump’s tariff strategy, with its market value plummeting by approximately $700 billion following the latest announcements. This situation underscores the challenge for Apple, which has built much of its manufacturing operations in China.

According to Wamsi Mohan, a Bank of America analyst, reserving India’s full iPhone production for the US could cover around 30 million of the over 50 million iPhones Apple ships to the US annually. He noted, “I believe they have taken steps to mitigate the immediate impact, but this approach isn’t a sustainable long-term solution.”

While Apple has been gradually expanding its presence in India since the COVID-19 pandemic disrupted its supply chains in China, a substantial 80 percent of its smartphone manufacturing still relies on Chinese facilities, as per Counterpoint Research.

A $2,300 Apple iPhone? Trump tariffs could make that happen

On Wednesday, MK Stalin, the chief minister of Tamil Nadu—which hosts four of India’s five iPhone manufacturing plants—met with a senior executive from Jabil, a key Apple supplier. In previous discussions, Jabil had signalled plans to expand its operations in the state. Although Jabil hasn’t publicly confirmed its involvement with Apple in India, Stalin mentioned on X that the meeting was aimed at discussing new business investments in Tamil Nadu.

Despite being subject to hefty 27 percent tariffs imposed by Trump, India is attempting to ease tensions by initiating discussions on a trade agreement with the US, which may potentially lower tariff burdens.

Additionally, India could benefit from Trump’s recent announcement to pause additional tariffs on various countries willing to negotiate, although these nations will still face 10 percent levies on their exports to the US.

Following Trump’s statement, Apple’s stock saw a notable rise. The former president also hinted at the possibility of exemptions for certain companies from the tariffs, stating, “We’re going to take a look at it.”

Although Apple is increasingly relying on India in the short term, it lacks the mature supply chain infrastructure to significantly boost manufacturing in-country, leaving it vulnerable to high tariffs in the long run. This situation may force Apple to either increase prices for its premium products or absorb the additional costs.

Analysts anticipate that any price increases from Apple could coincide with the launch of new iPhones in September and may apply globally, distributing the effects of the US tariffs across customers worldwide. Apple might also exert pricing pressure on its suppliers to help mitigate the financial impact of the tariffs.

A more complex issue for Apple is how to respond to Trump’s emphasis on “made in America” iPhones. The administration has maintained that US labour and resources are sufficient to facilitate domestic manufacturing of iPhones. However, experts caution that transitioning even a fraction of the iPhone supply chain to the US could involve monumental expenses, with Morgan Stanley analysts estimating several billion dollars in costs.

Another analyst, Dan Ives from Wedbush, projected a timeline of three years and $30 billion to relocate just 10 percent of the supply chain from Asia to the US.

As Erik Woodring of Morgan Stanley points out, Apple has been deeply entrenched in China and Southeast Asia for decades, facing the prospect of a complete overhaul in how it approaches manufacturing and pricing for the iPhone.

Despite Apple’s commitment to hire 20,000 employees as part of a $500 billion US investment plan—spread over four years to establish a new facility in Texas dedicated to artificial intelligence servers—the company continues to face challenges based on its reliance on outsourced manufacturing. Currently, the assembly of iPhones is primarily conducted in mainland China by companies like Foxconn and Pegatron, with a growing focus in India, where Tata is increasing its capabilities as an Apple supplier.

According to market research group TechInsights, the assembly of an iPhone 16 involves 387 individual components, including chips, circuit boards, batteries, and more. Apple’s most recent supplier list indicates that 98 percent of its direct spending in the fiscal year 2023 was shared among 187 companies, with 169 having manufacturing operations in China and Taiwan.

Beyond the challenges in China, Apple is also facing pressures throughout its supply chain in other countries. For instance, Vietnam, a significant exporter of MacBooks, is subject to a 46 percent tariff despite its government’s offer to eliminate tariffs on US goods.

While Bank of America’s Mohan states that assembling iPhones in the US is technically feasible, he raised concerns about the potential tariffs on sourced components, which could present significant challenges. Analysts following a recent call with Luxshare, another key Apple supplier, reiterated their belief that relocating iPhone assembly to the US remains impractical, given the continued reliance on Asian components that are subject to tariffs.