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Apple tells US that tariffs would hurt its ability to compete globally

In a letter, Apple voices concerns about how tariffs on iPhones could affect the company -- while at the same time helping rivals like Huawei.

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Apple says it could be affected by tariffs against China. 

Future Publishing/Getty

If the Office of the United States Trade Representative moves forward with more tariffs against China, it'd hurt Apple's competitiveness and the amount of money it contributes to the US economy, the company argued this week. It urged the US not to move forward with new fees that would affect the iPhone and its other devices.

In a letter to US Trade Representative Robert Lighthizer, dated Monday but released to the public Thursday, Apple said tariffs would "result in a reduction of Apple's US economic contribution," as the fees would impact all of its major products (iPhone, iPad, Mac, AirPods and Apple TV) as well as accessories like monitors, batteries and parts used to repair devices. 

What's more, Apple said the tariffs could hurt its competitiveness and "tilt the playing field in favor of our global competitors." 

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"The Chinese producers we compete with in global markets do not have a significant presence in the US market, and so would not be impacted by US tariffs," Apple wrote in the letter. "Neither would our other major non-US competitors."

Apple didn't specifically name any rivals, but its letter likely referred to China-based Huawei and other rivals like Samsung. A year ago, Huawei -- which is facing a US ban -- overtook Apple to become the world's second largest phone vendor. Huawei's smartphones sales have soared even though it doesn't have an official presence in the US, one of the world's largest markets. 

Apple designs its phones in the US, but the devices -- like many other electronics -- are assembled in China. Its products have previously avoided added fees, but the ongoing trade war with China could expand tariffs to the various devices Apple sells. That could mean higher prices for consumers and would affect the amount of money Apple makes from its products. 

The USTR said Thursday that it doesn't comment on specific submissions during the ongoing public notice and comment period. Apple didn't immediately respond to a request for additional comment. 

Trade battle

As part of its letter, Apple noted the large role it plays in the US economy. It's "responsible" for over 2 million jobs across all 50 states, including Apple's direct employees, manufacturing and retail partners and app developers who've benefited from creating software for Apple's iPhones, iPads and other devices.

After passage of US tax reform last year, Apple said it expected to contribute $350 billion to the US economy over a five-year period by opening new offices and hiring new workers. 

"We are pleased to report that we are on track to achieve this contribution," said Apple's letter this week.

The first round of tariffs, announced a year ago and implemented earlier in 2019, affected more than 1,100 types of products. The US government specifically excluded "goods commonly purchased by American consumers such as cellular telephones or televisions." That included iPhones. But more recent tariff plans would affect the iPhone

If the Trump administration decides to impose tariffs on iPhones and other electronics, it's likely that Apple and other companies would pass the increase on to consumers. Apple's latest iPhones already start at $749 for the iPhone XR, $999 for the iPhone XS and $1,099 for the iPhone XS Max.

Trump has long called for Apple to build its devices in the US, something that's not likely to happen. On Wednesday, a report said Apple is considering moving 30% of iPhone production out of China and into places like Southeast Asia. Samsung assembles a big chunk of its smartphones in Vietnam.

It'd be difficult for Apple to move such a large chunk of its smartphone production out of China, though.

"Apple has 'bet the farm' on its flagship China production factory, which produces the vast majority of iPhones globally and represents the hearts and lungs of the Cupertino ecosystem," Wedbush analyst Daniel Ives noted. 

He said that in the best case scenario, Apple would be able to move about 5% to 7% of iPhone production to India in the next 12 to 18 months. Moving 15% of production from China to other regions would take at least two to three years, he estimated. 

Originally published June 20, 8:55 a.m. PT
Update, 11:45 a.m. PT: Adds background and USTR comment. 

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