Apple is reportedly considering moving iPhone manufacturing out of China in the event that import tariffs go as high as 25 percent.
According to a new report from Bloomberg citing unnamed sources, the Cupertino company’s suppliers plan to stick with the existing model if the U.S. levies a 10 percent import tariff on smartphones. It will, however, reassess the situation should U.S. President Donald Trump decide on a more punitive 25 percent, the report added.
“That may change if tariffs escalate, an outcome now in the balance as Washington and Beijing begin thorny negotiations on a trade deal that could scale back a series of tariffs implemented this year,” reads the report. “Apple, already grappling with mounting evidence that its latest iPhone line-up has failed to excite consumers, can ill-afford a sharp hike in import taxes.”
A 10-percent tariff could result in an earnings-per-share decline of just $1 USD for Apple, should all its hardware sold in the U.S. be subject to the levy and the company absorbs the cost. However, a more severe scenario of a 25 percent tariff — absorbed by Apple — could result in an EPS decline of about $2.50 USD.
Apple has long made China its production base for the large majority of its devices, including iPhones, iPads, and Macs. The company’s supply chain now includes hundreds of companies, culminating in massive assemblers such Foxconn and Pegatron Corp.
Even though Foxconn, otherwise known as Hon Hai Precision Industry Co., produces the majority of iPhones in China, there are other facilities throughout Thailand, Malaysia, the Czech Republic, South Korea, Singapore, and in the Philippines. A move could be costly, but could happen relatively quickly if need be. Similar to any other business, Apple would likely pass on the cost of tariffs straight to the consumer.