Despite what President Donald Trump has said various times, China is not paying the U.S. millions of dollars because of the tariffs imposed on Chinese products imported into the U.S. The tariff is simply an import tax paid for by American corporations and consumers. Let's look at an example. Even though they are designed in Cupertino by Apple, the Apple Watch is actually manufactured in China making it eligible to be taxed when imported into the U.S.
When the Apple Watch is imported into the United States, Apple can eat the cost of the additional tax which means that consumers don't pay for it. Or, Apple could have consumers pay for the tax by raising the price of the device by the amount of the tax. So far, Apple has paid the import tax itself on its products assembled in China and shipped into the U.S.. And just as the U.S. was about to place tariffs on the iPhone, the two countries agreed on their Phase 1 trade deal that suspended tariffs that were about to go into place on smartphones made in the country. With the agreement, the U.S. cut the tariffs placed on the Apple Watch in half from 15% to 7.5%.
Apple has previously asked the U.S. Trade Representative (USTR) to be excluded from certain tariffs including the one imposed against the Apple Watch. The timepiece is the most popular watch in the world (not just the most popular smartwatch). In its request, the manufacturer noted that the Apple Watch "is not strategically important or related to 'Made in China 2025' or other Chinese industrial programs." Apple also pointed out that it could not find a source outside of China that can meet U.S. demand for this product over the next year.
Bloomberg reports that on Friday, the USTR sent a response to Apple approving the company's request to have the Apple Watch excluded from the import tax. This means that Apple is no longer taxed on Apple Watch units shipped into the states and the firm's profit margin will improve slightly on sales of the device, which belongs to Apple's strongest growing Wearables, Home and Accessories division.