Making it a bit more American, Apple's pie

Apple may have beaten Trump-tariffs for a few months by cranking up production in Asia. It reportedly shipped five planeloads of iPhones and other products from India to the US late last March to avoid new tariffs. But Apple's next moves will be closely watched. The tech giant has large manufacturing bases in countries hit hardest by 'Liberation Day' and its reciprocal tariffs, such as China (54%), Vietnam (46%), and India (26%). Impact of US tariffs on China alone could squeeze the company's gross margin by around 9%, reckons global investment bank Citi. The iPhone-maker, however, has a few options to lessen the impact. It could lobby Trump Inc for the exemption it enjoyed when Trump 1.0 had imposed tariffs on China. This course may be difficult now that Trump-tariffs are directed at a larger group of US trading partners.

Apple could also move its production among countries that secure preferential terms in negotiations with the US. The issue with this approach is it involves a high degree of uncertainty over how trade negotiations progress. Besides, Apple's supply chains in Asia are not at similar stages of development. It will require extra effort to disengage from Chinese vendors. Alternatively, Apple can commit, as it has done, to additional investment in the US. It has demonstrated its ability to scale up production in overseas bases and can reasonably be expected to post similar gains with domestic manufacturing. The constraint here would be supply of low-skilled labour in the US as it ratchets up the drive against (illegal) immigration.

Apple will probably exercise a combo of options available to it, lessening the likelihood of outcomes intended by Trump. China will remain a significant manufacturing base for the tech giant. Emerging bases like India will fare according to how well their governments negotiate concessions from reciprocal US tariffs. Apple will also raise US investment in design and marketing, the high-value buckets in its production chain. Net result would trim the share of offshore contract manufacturing.