The news: President Donald Trump is threatening Apple with a 25% tariff on all iPhones made outside of the US, indicating fractures in his relationship with Apple CEO Tim Cook.

• In a Truth Social post, Trump said, “I have long ago informed … Apple that I expect their iPhones that will be sold in the [USA] will be manufactured and built in the [US].”
• The post hinted that Apple’s tariffs could be even higher than 25%.

This is a reversal of fortune for Apple, which received a tariff exemption for iPhones during Trump’s first term.

Looking back: Apple’s multiyear effort to move iPhone production away from China only recently came to fruition. Shifting again to the US could undo that work.

• In 2023, Apple set a goal to shift a quarter of its global iPhone output to India by 2025. In April, iPhone shipments from India to the US reached about 3 million, per Omdia, up 76% YoY.
• Outside of China and India, Apple also has manufacturing factories and partners in Japan, South Korea, Taiwan, and Vietnam.

Why does it matter? Any tariff costs passed on to consumers could spell more trouble for Apple, both from iPhone buyers and from Trump, who previously called out Walmart when it said it would raise prices.

However, eating the cost of a 25% tariff could hurt Apple’s bottom line as it pushes into costly VR and AI ventures.

Weighing its options: Apple may spend less by accepting a 25% tariff than investing the time and resources needed to move manufacturing.

• Apple would need to pay US workers higher wages than those in China or India, and the US lacks workers who specialize in hardware assembly.
• Many suppliers for iPhone components, including processors and display screens, are based overseas. These parts are likely subject to tariffs as well, which could add up to a higher iPhone price.

Our take: The process of fully moving manufacturing may take longer than Trump’s second term, possibly prompting Apple to delay drastic moves and wait him out.

Considering Apple’s Siri delays and huge AI investments, the tariff would come at an especially poor time and could dampen investor confidence in the long term, though it might spur more panic buying.