Will your next iPhone cost $2,000? More? The answer to that question — and the future of America’s wealthiest company and our imperiled financial markets — rests on one man with a very tricky task.
Steve Jobs may have been the visionary who made touch-screen phones a reality, but it was the operational genius and savvy statesmanship of Tim Cook, his low-key successor, that sent Apple’s revenues and its stock price into the stratosphere. His triumph in fending off Donald Trump’s first-term threats were not without cost, however: By flattering Mr. Trump with attention while making little to no changes to Apple’s China ties, Mr. Cook played the president for the fool.
Now Mr. Trump is back in the White House, and he has slapped China with tariffs so high that they represent a major threat to Apple’s hammerlock on the smartphone market. It’s clearly going to be harder for Mr. Cook to pull off the same trick. If he fails — and most bet he will — it could be a huge blow to his company, to the stock market and to our broader economy.
Let’s start with a sense of the stakes. Apple has largely been the world’s most valuable company since 2011, and until Mr. Trump’s tariff threats, it was worth around 8 percent of the entire S&P 500. If your retirement is invested in index funds, Apple is your single biggest investment. It’s so enormous that merely issuing a quarterly profit warning, as the company did in early 2019, rattled global financial markets.
Then let’s turn to the fact that moving production to the United States — the stated goal of Mr. Trump’s extreme tariff regime — is almost impossible for Apple. China is home to roughly 90 percent of Apple’s global production, and it’s the only country where Apple has made such extraordinary investments in people, machinery and processes over a quarter-century.
Analysts at the firm Wedbush estimated that a domestically built iPhone would cost more than triple its current price tag, which means a price of about $3,500. Worse, America simply lacks the manufacturing expertise, the competitive industrial clusters and even the population density required to make Apple products en masse.
Many Apple suppliers are heavily reliant on China’s low-paid workers who migrate to cities for seasonal work, a number estimated at between 300 million and 500 million adults, which even at its lower extent is nearly equivalent to every man, woman and child in the United States. In the busy holiday season, these workers are critical to Apple’s ability to ship one million iPhones per day, with each unit comprising roughly 1,000 components. Trying to move all manufacturing out of China would most likely cost hundreds of billions of dollars.
So in 2016, when Mr. Trump was urging his supporters to boycott Apple products and threatening huge China tariffs, little wonder that Mr. Cook, a quiet Democrat and a strong supporter of L.G.B.T.Q.+ rights and diversity initiatives, went on a charm offensive. He made a point of calling Mr. Trump and visiting frequently. The next year, Mr. Trump said that Mr. Cook vowed to build “three big plants, beautiful plants” in America.
The flattery worked, with Apple gaining broad exemptions from Mr. Trump’s tariffs. But Apple built zero plants in the United States. Its chief executive simply ran out the clock on Mr. Trump’s presidency.
Since then, Apple has only grown closer to the Middle Kingdom, winning over Chinese officials by helping Chinese companies mimic, and then oust, rival multinationals that were responsible for building China’s tech manufacturing dominance over the past decade, my reporting has shown. Apple’s own annual reports show the number of Chinese vendors in its “top supplier” list more than tripled, to 52, between 2012 and 2023, displacing their American and Taiwanese rivals.
Mr. Cook donated $1 million to, and attended, Mr. Trump’s January inauguration. And a few weeks later Apple pledged to “spend and invest” $500 billion to expand “support for American manufacturing” during the president’s second term. Mr. Trump boasted that the investment reflected his America First agenda.
That promise alone won’t be enough to save Apple. Some of Mr. Trump’s advisers must realize that Apple’s promise may be nonsense. There’s little evidence the company will actually spend anywhere near $500 billion; the announcement mentioned just four new initiatives whose total investment dollars are unlikely to add up to even one-tenth that amount. Unless the math misleadingly includes buybacks and dividends, which have nothing to do with American manufacturing, or unless further projects are really planned, the pledge, like the one Mr. Cook made in Mr. Trump’s first term, is hot air.
And this time, Mr. Trump’s tariffs are far more onerous. Set to take effect on Wednesday, they are the biggest threat to Apple’s business since Mr. Jobs returned to save the company from near-bankruptcy in 1997. Analysts from Rosenblatt Securities estimated they could diminish Apple’s annual profits by $40 billion. Not only did Mr. Trump say last week that he would impose a steep 54 percent tariff on China (including earlier increases), he also included at least 90 other countries, effectively short-circuiting Apple’s efforts to reroute products through Vietnam (tariffs: 46 percent) or India (27 percent). In responding with tariffs of its own, China shows no sign of backing down from a fight. Nor does Mr. Trump, who is pushing ahead with an additional 50 percent tariff first threatened on Monday.
Apple is stuck, and there is no obvious way out. Even if it were possible for Mr. Cook to move Apple production out of China immediately, he would risk stirring Beijing’s ire and endangering a roughly $70 billion business there. His only option is to continue pushing more “final assembly” of Apple products to places like India and Vietnam, while leaving the bulk of complex manufacturing in China — walking a line that grows ever thinner and more precarious. Apple shares have lost more than $1 trillion since peaking in late December.
Mr. Trump would be a fool not to see past Apple’s politicking this time. Then again, he often cares more about appearances than principles. Anyone betting on Apple’s future should hope Mr. Cook has one more diplomatic ace up his sleeve. This time, the odds against him are long.
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