Free Trade

Trump Says iPhones Will Get More Expensive. Actually, It's Going to Be Much Worse Than That.

Building iPhones entirely in the U.S. would double or triple their retail prices. There's no way Apple is going to do that.


Xinhua/Sipa USA/Newscom

In what seems like an admission that his trade war is neither "good" nor "easy to win," President Donald Trump tweeted over the weekend that prices for Apple products, like iPhones, "may increase because of the massive Tariffs we may be imposing on China."

This kind of honesty is actually a positive step for the administration. Yes, it's misleading to say that the tariffs are being imposed "on China"—tariffs are import taxes paid by consumers, not by foreign producers—but being upfront about how tariffs will increase prices for Americans is a marked improvement over his months of denials, let alone his claim that "tariffs are the greatest."

Still, the Saturday tweet really undersells the potential impact of Trump's plan to slap 25 percent tariffs on another $200 billion of Chinese imports. It is not only Apple products but potentially hundreds of consumer goods that could spike in price—from computers, tablets, and video games to vacuum cleaners, furniture, and children's toys. All just in time for Christmas.

In short, American consumers are about to feel the brunt of tariffs in the same way that aluminum- and steel-consuming industries have for months. The first rounds of tariffs focused on industrial goods and raw materials, and they have increased costs without achiving their primary policy goal of on-shoring manufacturing jobs.

Despite the lack of evidence that the tariffs are working—indeed, without understanding why he even wants tariffs in the first place, if Bob Woodward's new book is to be believed—Trump is now doubling down.

Adding 25 percent to the cost of a new iPhone will hike the price of Apple's low-end product to more than $200. If cell phone prices spike, or if there's a hit to Apple stock (a major driver of the stock market as a whole, and a key component of mutual funds held by many average investors as part of retirement accounts and the like), this will quickly go from being an economic problem for Trump to a political one.

But Trump has what he says is an easy solution.

"Make your products in the United States instead of China," he tweeted this weekend. "Start building new plants now."

Even if it were possible for Apple to re-route complex global supply chains that have been years in the making, all to appease Trump's desire for an American-made iPhone, would consumers benefit?

No. An American-made iPhone would cost more than $2,000 at the retail level, according to an analysis by Marketplace.

One interesting detail in that Marketplace report: Cheap Chinese labor, contrary to popular opinion, is not the source of most of the savings achieved by building iPhones in China. Apple pays about $5 per iPhone in labor costs, but building phones in the U.S. would add only about $10 to that total. The real problem with trying to make an all-American iPhone is that cell phone components and parts are sourced all around the world. The pieces that go into an iPhone cost Apple about $190 to puchase, but would easily cost three times as much to produce in the U.S.

Even if it were possible to force, or entice, Apple to make an iPhone in the U.S., you'd end up with a far more expensive product. Or as Michael Froman, a former U.S. trade representative, told Inside Trade reporter Anshu Siripurapu in December:

It turns out that Apple knows more about the process of making iPhones than Donald Trump does. Tariffs will hurt American consumers, but they won't make Apple build iPhones in the U.S.—because that would hurt consumers even worse.