Upcoming 2019 Apple iPhones escape tariffs until mid-December

Back on August 1st, U.S. President Donald Trump disseminated a tweet announcing that another $300 billion of Chinese imports would be taxed at 10% starting on September 1st. This tier of products includes smartphones like the Apple iPhone, and other consumer electronics goods shipped to the states from China. Since the iPhone is designed in the U.S. but assembled in China, it is considered an import from that country and is subject to the tariffs. Since the latter is a tax that U.S. companies pay, Apple could decide to eat the entire cost of the tax, pass it on to consumers in the form of higher prices, or pay some of the additional cost and have consumers pay the remainder.

But it appears that the iPhone and other smartphones imported into the U.S. from China are getting a short-term reprieve. According to CNBC, the United States Trade Representative has announced this morning that certain items related to "health, safety, national security, and other factors" are being removed from the list of Chinese imports facing the 10% tariffs. And other products, including cell phones, won't have the 10% import tax imposed on them until December 15th. The U.S. Trade Representative said that this group receiving the reprieve includes "cell phones, laptop computers, video game consoles, certain toys, computer monitors, and certain items of footwear and clothing."

UPDATE:10% tariffs on the AirPods and the Apple Watch will start on September 1st as previously scheduled.

So this means that unless things change again, the 2019 iPhone models won't face the additional 10% tax when they are first launched, most likely in the middle of next month. TF International analyst Ming-Chi Kuo, who always appears to have his finger on Apple's pulse, said that the company was planning to "absorb most of the additional costs" of the tariffs. Apple already picks up the cost of tariffs imposed on certain iPhone and iPad cases imported from China in order to keep the retail price the same.

It appeared that the iPhone was off the hook on June 29th when President Trump and his Chinese counterpart announced a truce in the trade war between the U.S. and China. Trump said that China agreed to buy "tremendous" amounts of U.S. agricultural products. Mr. Trump claims that the Chinese failed to live up to this agreement forcing him to announce the imposition of tariffs on the additional $300 billion worth of goods exported from China. However, the story from China is a bit different; they claim that Trump just decided to announce the additional 10% tariffs which caused the country to back out of the agreement to buy agricultural products from the states. Either way, the result is the same-escalation of this battle that appears likely to continue for some time.

Back in June, we passed along a report indicating that Apple was looking to move 30% of its production out of China. The company already produces some older models in India in order to evade Indian import taxes that could add as much as $100 to the cost of each unit. It also was expected to start manufacturing its 2018 line in India starting this month, although the number of phones expected to come off the assembly line will be far short of the number it turns out in China. Another possible location that could end up hosting iPhone production is Vietnam.

As you might imagine, moving factories and training workers is a time-consuming process. And working out the logistics of the supply chain also can't be done overnight. So for now, Apple continues to face the possibility of having to pay a tax on every iPhone it imports from China.