Your next iPhone might cost more because of US-China trade war

President Donald Trump says in a Wall Street Journal interview that he may impose a 10 percent tax on phones and laptops built in China.

Shara Tibken Former managing editor
Shara Tibken was a managing editor at CNET News, overseeing a team covering tech policy, EU tech, mobile and the digital divide. She previously covered mobile as a senior reporter at CNET and also wrote for Dow Jones Newswires and The Wall Street Journal. Shara is a native Midwesterner who still prefers "pop" over "soda."
Shara Tibken
4 min read

Apple CEO Tim Cook won't be very happy if his iPhones are taxed. 

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President Donald Trump's battle with China might hit your next iPhone.

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 Trump, speaking during an interview with The Wall Street Journal on Monday, said he may place tariffs on iPhones and laptop computers imported from China. 

"Maybe. Maybe. Depends on what the rate is," the president said, referring to mobile phones and laptops, according to the Journal. "I mean, I can make it 10 percent, and people could stand that very easily."

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The Office of the US Trade Representative in June said that $50 billion worth of Chinese goods with "industrially significant technologies" will be subject to 25 percent tariffs starting Jan. 1. More than 1,100 types of products will be affected, but the US government specifically excluded "goods commonly purchased by American consumers such as cellular telephones or televisions." That mean iPhones were exempt.

But Trump's comments Monday suggested the tariffs could be expanded. Trump also told the Journal that he plans to move ahead with the already-planned 25 percent tariffs, a boost from the current level of 10 percent. The Chinese government has asked the US to delay the start of the tariffs.

Apple declined to comment. 

If Trump decides to impose tariffs on iPhones and other electronics, it's likely that Apple and other companies would pass the increase onto 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.

Under Trump's initial plans, the Apple Watch and AirPods would have been subject to the 25 percent tariff. Apple in September wrote a note to the US Trade Representative, asking for the items to be exempt. In its letter, Apple argued that "because all tariffs ultimately show up as a tax on US consumers, they will increase the cost of Apple products that our customers have come to rely on in their daily lives." Later that month, the items were removed from the tariff list

Trump has long called for Apple to build its devices in the US. In June, Apple's major manufacturer, China-based Foxconn, broke ground on a new $10 billion manufacturing plant in Mount Pleasant, Wisconsin. The 20-million-square-foot factory will produce LCD displays and employ as many as 13,000 people, officials said in the initial announcement by the White House over a year ago. 

Apple does the majority of its research and development in the US, but the bulk of its devices have been assembled overseas. It does plan to build a new campus, but it hasn't yet specified the size or location. And while Foxconn is building a new factory in the Midwest, most of Apple's devices will continue to be built outside the US.

Market jitters

Apple's stock has tumbled 21 percent since the company reported fiscal fourth-quarter earnings Nov. 1. The decline has meant Apple's no longer worth more than a trillion dollars, a level it had reached in August. Apple's shares slid 1.8 percent to $171.45 in after-hours trading Monday after the Journal report hit. 

In November, Apple's quarterly results showed it may be grappling with a case of iPhone fatigue -- but it's still getting people to shell out more money for the phones they do buy. The Cupertino, California, company earlier this month said it didn't sell as many iPhones as analysts expected, and it projected lackluster revenue results for the December quarter. Apple also said it would no longer detail unit sales of its major devices, a reversal from its strategy since first introducing the products.

The quarterly results and plans to no longer break out iPhone sales have made investors skittish. Threats of tariffs don't help.

"This tariff threat on iPhones out of left field from Trump and Beltway will surely add to this white knuckle period for Apple," Wedbush analyst Daniel Ives noted. "While we ultimately believe this is all part of a broader negotiation with China as talks heat up over the next week, now Cook and Apple find themselves squarely at the center of the tariff talks, which were previously background noise."

Apple -- which has long held most of its cash overseas -- in January said it would pay $38 billion in taxes to bring the money back to the US as part of a repatriation program. The company said it plans to invest $30 billion in the US over the next five years by building a new campus and creating 20,000 new jobs. Factoring in current spending, product sales tax and taxes on employees' wages, Apple said it expects to contribute $350 billion to the US economy over that period. But that won't be spent on new factories. 

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