Apple has had few incentives in the past to start making iPhones in US

SAN FRANCISCO (AP) — Unhappy that Apple intends to source nearly all of its U.S. iPhones from India, President Donald Trump on Friday threatened a 25% tariff on the popular device unless the tech giant moves production to the United States. But Apple has seen little incentive in the past to manufacture domestically.

Apple has traditionally produced its devices in China, in massive factories that rely on a vast network of local suppliers. The company’s reliance on this relationship thrust the technology trendsetter into the crosshairs of Trump’s trade war.

In response to the president’s recent exchange with China, Apple CEO Tim Cook said earlier this month that most iPhones sold in the U.S. during the current fiscal quarter would come from India. After Trump rolled out tariffs in April, bank analysts estimated that a $1,200 iPhone would, if made in America, jump in price anywhere from $1,500 to $3,500.

The disincentives for Apple shifting its production domestically include a complex supply chain that it began building in China during the 1990s. It would take several years and cost billions of dollars to build new plants in the U.S. Combined with current economic forces, the price of an iPhone could triple, threatening to torpedo sales of Apple’s marquee product.

“The concept of making iPhones in the U.S. is a nonstarter,” asserted Wedbush Securities analyst Dan Ives, reflecting a widely held view in the investment community that tracks Apple’s every move. He estimated that the current $1,000 price tag for an iPhone made in China, or India, would soar to more than $3,000 if production shifted to the U.S. And he believes that moving production domestically likely couldn’t be done until, at the earliest, 2028. “Price points would move so dramatically, it’s hard to comprehend.”

Apple didn’t immediately respond to a request for comment Friday. On a quarterly earnings call earlier in May, Cook told investors that tariffs had a “limited impact” on the company in the March quarter because it was able to optimize its supply chain. But Cook warned that it is “very difficult” to predict beyond June “because I’m not sure what will happen with tariffs.”

Apple is widely expected to eventually raise the prices on iPhones and other popular products because the Silicon Valley’s supply chain is so heavily concentrated in China, India and other overseas markets caught in the crossfire of Trump’s escalating trade war.

The big question is how long Apple might be willing to hold the line on its current prices before the tariffs’ toll on the company’s profit margins become too much to bear and consumers are asked to shoulder some of the burden.

One of the main reasons that Apple has wiggle room to hold the line on its current iPhone pricing is because the company continues to reap huge profit margins from the revenue generated by subscriptions and other services tied to its product, said Forrester Research analyst Dipanjan Chatterjee. That division, which collected $96 billion in revenue during Apple’s last fiscal year, remains untouched by Trump’s tariffs.

“Apple can absorb some of the tariff-induced cost increases without significant financial impact, at least in the short term,” Chatterjee said.

Apple tried to appease Trump in February by announcing plans to spend $500 billion and hire 20,000 people in the U.S. through 2028, but none of it was tied to making an iPhone domestically. Instead, Apple pledged to fund a Houston data center for computer servers powering artificial intelligence — a technology the company is expanding into as part of an industrywide craze.

U.S. Commerce Secretary Howard Lutnick also predicted tariffs would force a manufacturing shift during an April 6 appearance on a CBS News program. “The army of millions and millions of human beings screwing in little screws to make iPhones, that kind of thing is going to come to America,” Lutnick said.

But during a 2017 appearance at a conference in China, Cook expressed doubt about whether the U.S. labor pool had enough workers with the vocational skills required to do the painstaking and tedious work that Lutnick was discussing.

“In the U.S. you could have a meeting of tooling engineers and I’m not sure we could fill the room,” Cook said. “In China, you could fill multiple football fields.”

Trump also tried to pressure Apple, to no avail, into shifting iPhone production to the U.S. during his first term as president. But the administration ultimately exempted the iPhone from the tariffs he imposed on China back then — a period when Apple had announced a commitment to invest $350 billion in the U.S. Trump’s first-term tariffs on China also prompted Apple to begin a process that led to some of its current iPhones being made in India and some of its other products being manufactured in Vietnam.

Cook took the president on a 2019 tour of a Texas plant where Apple had been assembling some of its Mac computers since 2013. Shortly after finishing that tour, Trump took credit for the plant that Apple had opened while Barack Obama was president. “Today I opened a major Apple Manufacturing plant in Texas that will bring high paying jobs back to America,” Trump posted on Nov. 19, 2019.