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3 months ago
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Buying the latest iPhone costs about $1,000. With Trump’s proposed 145% tariffs, an iPhone imported from China would go up to $1,800. That price increase won’t take effect for 2–3 months, though, because Apple can keep selling inventory before it runs out and they have to import more. That gives Trump some time to change his mind.
Trump said that the point of the tariffs was to bring manufacturing back to the US. How much would the price go up, if the iPhone was made in the US?
It depends on exactly what question you’re asking.
Is the question, “what would it cost to make every last piece of the phone in America, starting tomorrow?”
In that case the answer is easy: we don’t have factories to build most of the components. We also don’t have engineers with the right training. So we could not make any iPhones tomorrow.
Is the question, “what would it cost to import all the parts and pieces and then have an American worker assemble them?”
The answer there is also pretty easy: it would add about $300 in labor costs. But we still could not do that tomorrow. It would take a few years to move those factories. And most of the parts and pieces would still be made in other countries, so it’s not obvious what you gain from adding that cost.
Or, is the question, “what would it cost, after we’ve built new factories in America, and trained new workers?”
That answer gets more complicated and interesting.
Where an iPhone is made
The iPhone is a great example of the complexity of modern supply chains. The components are made in many different countries, before they get assembled in one place.
The total cost of production is about $580, of which the assembly labor is only $30.
The main CPU chip costs about $130. It’s designed by Apple engineers in America, but it’s made in Taiwan, by TSMC.
The other chips come from a mix of suppliers. The 5G chips are designed by Qualcomm in the US, but are made by TSMC in Taiwan. The bluetooth and Wifi chips are designed by Broadcom, in the US. Some of the power management and sensor chips come from Bosch in Germany or Murata and Sony in Japan. The NFC chip is from NXP, in the Netherlands.
The printed circuit board is made by Taiwanese companies (Zhen Ding, Unimicron, Compeq), and produced in Taiwan or mainland China.
The phone’s screen costs about $115. That’s made by Samsung or LG, both in South Korea.
The iPhone’s flash memory chips come from Kioxia in Japan, Western Digital in the US (partnering with Kioxia), and Korean companies Samsung and SK Hynix. Some of the DRAM memory comes from Micron, in the US, but those chips are made in Japan or Taiwan.
The camera’s sensor comes from Sony, in Japan. The camera lenses come from Japan or Taiwan. The camera module assembly, holding the lenses and sensor together, is done by LG, in South Korea.
The lithium ion batteries are made in China, by suppliers like ATL, Desay, and Sunwoda.
The iPhone 15 switched from a steel frame to a titanium frame, made by Foxconn. Foxconn is a Taiwanese company that operates in China. The glass for the phone’s screen is also made in China. The steel and aluminum frames in other iPhone models were also made in China, but could be made in India as Apple moves production there.
The final assembly of all these components is mostly done in China by Foxconn (and a few other companies like Pegatron). Chinese factories assemble about 86% of the phones, while the other 14% are made by Foxconn and Pegatron in India.
Here’s a breakdown of the value of the iPhone components, by country:
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This is a measure of how much money each country makes off of the components. China, surprisingly, is only getting about 3% of the money here.
If you broke this down by where the manufacturing is done, then Taiwan would get a bigger share, around 50%, and China might be closer to 10%.
This isn’t the picture I imagined, when I started researching this topic. Based on all the rhetoric against China, I would have guessed that Chinese companies are doing most of the work, or getting most of the reward.
Instead, it’s skilled engineers in Japan, Korea, and Taiwan that are contributing most of the value here. Those countries are all allies of the US. Companies in the US are also benefiting by designing many of the chips.
China’s contribution is fairly simple: they make the batteries and the metal frame, and they assemble the final product.
Then Apple sells the finished product for a healthy markup, of about $400.
Most of the Chinese components would be fairly easy to replace — the batteries could be made in Korea, instead, at a higher cost. The frame could be built in many countries.
Replacing the contributions from Japan, Korea, and Taiwan would be much harder.
If you wanted to bring all the components to America, you’d need new factories in America to build those parts. More importantly, you’d need a new generation of engineers with good experience in making chips, making lenses, and so on. No one in America makes memory chips. There’s more experience at making cameras in Japan.
In theory, they could switch to having Intel manufacture the chips, but Intel was historically behind TSMC at making 3 nanometer chips, and Intel might have difficulty with the scale.
You might need government help to get this all started, to fund or support a chip foundry. Government might be able to help encourage educating or training all the new engineers needed. That could extend both to highly skilled chip engineers and to technical schools for people who do the manufacturing.
Oddly enough, I don’t hear much about the government making these investments and promoting education.
Instead, Trump seems to want to import the Chinese factory labor, the worst job in the entire process.
The assembly could be done outside of China, but it would cost more and take time to transition.
Life at Foxconn city
Half of the iPhones in the world are made in Zhengzhou, China, often called Foxconn city. The town has 350,000 workers making iPhones.
A Business Insider article describes life in Foxconn city.
Workers on the dayshift start at 8 AM, get an hour for lunch, and end at 5. If there’s overtime offered, they work until 8 or 10 PM.
Most workers do one task over and over, the entire shift: polishing the screen, soldering one component, or putting a single screw into the phone.
They might handle 600 to 1,700 iPhones per day, depending on the task. That’s up to 3 phones per minute, for up to 12 hours.
People work 6 days a week.
Most factory workers are 18–25 years old, but some are as young as 16.
The pay is low, by American standards: starting salaries are $300 per month. After 45 days, salaries go up a bit, as high as $500. People can make as much as $700 by working 20 hours of weekly overtime.
If they work the nightshift and do overtime, they can make up to $785 per month.
Factory workers live in 10 story dormitories. Each dorm room sleeps 8 people with bunk beds. Rent is $25 a month.
It sounds like an awful grind, but the pay is better than other non-skilled jobs in China.
Outside the factory, there are other people grinding to serve food to the workers. Many of them are former factory workers. Business Insider describes the life of a restaurant owner, working outside the factory gates:
The vendors open their restaurant early in the morning to cook breakfast for the day-shift workers.
After the lunch crowd leaves around 1 p.m., they clean up and sleep for a few hours. They reopen around 7 p.m. for dinner and the night-shift workers.
They stay open until the night workers’ lunch at 1 a.m., then go to sleep around 3 a.m., after cleaning the restaurant. Most nights, Liu and her husband sleep only three or four hours.
So, working at Foxconn sounds like an awful job, but it’s mostly young people doing it, and some of them seem to like the opportunity to make more money than elsewhere. The article summarizes it like this:
“The employees always say the people outside want a job, and the people inside want to quit.”
There have been numerous suicides at Foxconn. 14 workers killed themselves, in 2010, and 300 threatened to jump off the roof. The company installed suicide nets to prevent jumpers.
I’ll leave it to the reader to imagine an all American version of Foxconn.
The wages would have to be higher, of course, but it’s also harder to imagine people being drawn to that life, as most Americans have opportunities to do easier work.
And we’d need much stronger suicide nets, to catch Americans who jump.
Tariffs on our allies
The complex supply chain is also a good lesson in why it’s dangerous to interfere with international trade.
Suppose that the US follows with its current policy, and puts a 10% tariff on all countries, buys the pieces, and then assembles the phone in America.
In that case, you’ll charge 10% tariffs on all the imported pieces from Japan, Korea, and Taiwan.
Because Trump is charging every country 10%, many of them will respond and charge 10% back. That means that if the assembled phone is sold to Europe, it will cost the European customer another 10% more.
Even if the labor cost was the same for the “American made” phone, it would now have a 20% disadvantage against, say, a Chinese brand being sold to Europe.
So, what will actually happen with Trump’s tariffs?
I see 5 main possibilities:
1. Trump changes his mind about the tariffs.
He could declare victory, somehow, even though we’re right back where we started. MAGA voters will praise this and describe it as, “the art of the deal”.
2. Trump gives Apple an exemption from the tariffs.
Maybe Trump extracts some kind of bribe in the process. Now we’re still where we started, except that smaller businesses without political connections have to raise their prices, and many of them will fail.
3. Trump keeps the tariffs, but Apple keeps making phones in China.
Maybe they think he will eventually change his mind. Why take all the effort to move, if he can still reverse course in a few months? Building a new factory takes a few years, and by the time it’s done, Trump is out of office and the factory is not competitive with China.
4. Apple moves more phone assembly from China to India.
With Trump’s current tariff on India, the price is maybe $60, as opposed to $800 higher, with the tariff on China.
India already made 14% of the 230 million iPhones sold in 2024, or about 30 million phones. That’s up from only 7%, the year prior. It would probably take a long time to move 100% of production from China to India.
Apple doesn’t need to move all the phone production to India, they just need to move those phones headed for the US so those aren’t taxed by Trump’s tariffs. They could still make the rest of the phones in China and sell them to customers around the world.
US consumers bought somewhere between 80 and 90 million iPhones, last year. So, Apple could probably get the Indian production volume that high within a few years, and then sell those phones to the US, with only a 10% tariff.
Of course, that plan could backfire if Trump then becomes resentful about Indians having these jobs.
5. Apple could just raise prices.
Apple can’t eat the entire loss. It costs $580 to build an iPhone and then they sell if for $1,000. As long as Trump wants tariffs of 70% or higher, those will cost more than their entire profit margin for Apple to pay that cost themself. Right now, he’s calling for 145% tariffs, which would be twice Apple’s profit.
So they have to pass on most of the cost to customers.
If the price doubles for US customers, but US customers only buy 40% of the world’s iPhones, they could jack up prices by 40% on everyone in the world to pay for the US tariffs.
In a fairer world, they would just double the prices in the US.
Most people in the US already buy the phones on installment plans, as part of their cell phone bill. Americans are already really bad at saving, they have too many monthly bills, they take out credit card debt. Many will simply finance a costlier phone via a bigger phone bill.
The assembly lines aren’t moving here any time soon, but higher prices probably will be. On the balance, those higher prices will make some Americans lose their jobs.
(Edit: since writing this, we have new reversals! On Saturday, the news was that Trump folded and gave computers and smartphones an exemption. But on Sunday, someone else in the Trump admin says that the tariffs will just start in a month or two. And then Trump himself said there’s still a 20% tariff on Chinese phones, until the larger ones are applied)
