- Consumers may postpone upgrades or seek alternative brands, potentially reshaping the smartphone market landscape.
The prospect of a 25 per cent tariff on foreign-made smartphones, as recently threatened by former President Donald Trump, heralds significant ramifications for the smartphone industry, particularly for leading manufacturers Apple and Samsung.
If enacted, this tariff would not only escalate production costs but also likely cause retail prices to soar, potentially tripling the cost of devices and reshaping the competitive landscape in the US market.
President Donald Trump has said it is ok for Apple to go to India to build its plants, but then the tech company will be unable to sell its products in America without tariffs.
Apple and Samsung’s production strategies are deeply entrenched in global supply chains that span multiple countries, including India, China, Vietnam, and others. This distributed manufacturing approach allows for cost efficiencies, access to specialised components, and streamlined assembly processes.
For example, Apple assembles a substantial portion of its iPhones in India through Taiwanese contract manufacturers like Foxconn and Pegatron, leveraging the comparatively low labor costs of roughly $230 per month.
In stark contrast, US labour costs, particularly in states with higher minimum wages such as California, could reach $2,900 monthly—over a thirteen-fold increase. This disparity alone would increase assembly costs per iPhone from approximately $30 to $390, drastically eroding the profit margins manufacturers currently enjoy.
Multifaceted challenges
Attempting to relocate production back to the United States introduces multifaceted logistical and financial challenges. Not only would companies have to contend with substantially higher labour costs, but experts also highlight the absence of mature automation technologies necessary for efficient domestic manufacturing of complex smartphones.
This technological gap means that a return to US-based assembly lines would face hurdles in scaling production and maintaining product quality without massive investment and time-consuming adjustments.
Moreover, sources for various critical components—such as Qualcomm and Broadcom’s chips in the US, OLED screens from South Korea, camera systems from Japan, and other parts from countries like Germany and Vietnam—would still require intricate international coordination.
The tariff threat has already begun to influence market dynamics. Apple’s stock value dropped by approximately 2.6 per cent , corresponding to a loss of around $70 billion in market capitalisation.
This decline reflects investor concerns regarding rising production costs, potential decreases in consumer demand, and the broader implications of trade tensions on economic stability.
Supply chain disruptions
Economists are apprehensive that such tariffs may exacerbate inflationary pressures on essential goods and could potentially dampen economic growth by reducing consumers’ disposable income and spending power.
For consumers, the imposition of a 25 per cent tariff would likely translate into significantly higher smartphone prices, with estimates suggesting that the retail cost of iPhones might escalate to as much as $3,500 per unit from a current range of $800 to $1,200.
These increases could deter buyers from upgrading their devices promptly or push them towards more affordable alternatives offered by competing brands. Additionally, supply chain disruptions might limit the availability of certain models, further constraining consumer choice.