Apple at the crossfire: What are the implications of US-China tariff war for the iPhone giant?

The US-China tariff war has escalated to its most intense phase yet, threatening to disrupt the global tech supply chain. In a dramatic move, US President Donald Trump recently slapped a 145% tariff on Chinese imports, one of the steepest in modern history. China quickly hit back with a 125% tariff on American goods.

This tit-for-tat escalation marks the sharpest spike in trade tensions between the world’s two largest economies, pushing US tariffs to levels not seen in over a century. Let's take a deep dive into understanding how it all started and why it has become a headache for the world's most valuable company (by m-cap), Apple Inc. 

How the US-China tariff war unfolded

Source: White House Annex, Donald Trump’s X, Bloomberg

These are no longer symbolic gestures as they are expected to cause a major shift in global trade. And Apple, with its deep reliance on Chinese manufacturing, now finds itself squarely in the middle of this storm which is getting uglier by the day.

What are the implications for Apple?

Apple relies heavily on China, not just as a key market, but as its primary manufacturing base. Around 90% of iPhones are assembled in China by partner Foxconn, according to Evercore ISI. In fact, China accounts for around 80% of Apple’s production capacity, according to estimates, making the company extremely vulnerable to US tariffs on Chinese goods. 

While Apple has made efforts to diversify its manufacturing footprint to India and Vietnam, the majority of its high-volume production remains in China. If the tariffs remain in place, analysts estimate that a $1,199 iPhone 16 Pro Max made in China could retail for nearly $2,000 in the US. 

An identical model assembled in India might see a far smaller increase, around $45, thanks to a temporary 90-day tariff pause for countries other than China. This stark price difference has forced Apple into a logistical scramble to protect its margins.

How is Apple dealing with the situation?

In response to the crisis, Apple has taken a major step: chartering cargo flights from India to the United States. According to Reuters, the company has already flown in around 600 tons of iPhones, an estimated 1.5 million units, to the US market to build up inventory before tariffs fully kick in. This strategy was months in the making. Apple reportedly negotiated with Indian airport officials to streamline customs clearance at Chennai airport, cutting processing time from 30 hours to just six.

In order to meet the surge, Foxconn has reportedly ramped up its Chennai plant operations, even running on Sundays, which are typically off-days in India. Apple aims to boost India-based output by 20% in the coming months, as its long-term strategy continues to lean into supply chain diversification. Apple seemed prepared for the move since it is not the iPhone maker's first rodeo with Trump's tariffs.

During Trump’s first term in office (2016–2020), Apple successfully managed to get exemptions on some of its most important products, including iPhones. The company also began laying the groundwork for diversification, gradually expanding its production into India and Vietnam.

In 2019, Tim Cook even gave Trump a tour of Apple’s Texas facility. The visit was widely seen as a move to maintain a favorable relationship with the administration. Whether Apple can secure similar exemptions again in 2025 remains to be seen. But this time, the tariffs are broader, deeper, and much more punitive.

How does Apple's financials look?

In the December quarter, Apple posted a 4% increase in overall revenue, hitting $124.3 billion, slightly above expectations. Net profit rose 7.1% YoY to $36.33 billion, while the company reported a record gross margin of 46.9%, driven by strong performance in Mac and iPad sales. However, iPhone revenue fell short of expectations at $69.14 billion, and China sales dropped 11.1%, the sharpest decline since last year.

Apple projected low to mid-single-digit revenue growth for the March quarter, with services expected to grow in low double digits and gross margin guidance of 46.5%–47.5%. Apple’s services segment is growing steadily, yet it can not fully offset the threat posed by potential iPhone price hikes. 

Apple CEO Tim Cook is expected to address the escalating tariff situation during Apple’s upcoming earnings call on May 1, where investors will be keenly watching for any clarity on the company’s pricing, supply chain adjustments, and long-term strategy. Investors will also be keen to know whether the company will absorb the rising cost, in turn, hitting margins or will it pass on the cost to the customers?

Apple stock's slippery-slope ride in 2025

The iPhone maker has been on a roller-coaster ride so far this year. It started the year with a market cap of $3.67 trillion and has since seen a sharp decline with m-cap falling to $2.97 trillion on April 10th, according to Macrotrends data. This represents a loss of approximately $700 billion in value, about 19% of its market cap, within just a few months. 

The drop highlights growing investor concerns, driven by underwhelming iPhone sales, a decline in China revenue, and broader macroeconomic pressures, the tariff implication concerns.

iPhone price hike or can Apple hold the line?

Apple sells more than 220 million iPhones globally every year, according to Counterpoint Research estimates, with the US remaining its largest and most lucrative market. A sustained tariff war could force the company to choose between lower profit margins or higher consumer prices, a tough spot to be in. The idea of manufacturing iPhones in the US has been floated, but experts say it’s not viable, at least not before 2028.

Harvard’s Willy Shih estimates that local production could raise costs by at least 20%, while Wedbush Securities believes the price of a US-made iPhone could exceed $3,000. So far, Apple has not made any public statements on how it plans to respond long-term. As the US-China tariff war escalates, Apple is in an impossible position: trying to maintain global supply chain efficiency while navigating protectionist policies from both superpowers.

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