Annabel Lean
Business Reporter
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Do you leave or not leave? With over 1 billion consumers, China is Apple’s second largest market
All iPhones are labeled to indicate that they were designed in California.
The refined rectangles that run much of our lives are certainly designed in the US, but they could live thousands of miles away in China. US President Donald Trump’s tariffs have been the most violent attack, and now it’s up to 245% on Chinese imports.
Apple sells over 220 million iPhones a year, with most estimates that nine tenths of them are made in China. From shiny screens to battery packs, many of the components of Apple products are made, sourced and assembled into IPHONE, iPad and MacBooks. Most are shipped to the US, Apple’s largest market.
Luckily, Trump suddenly exempts smartphones, computers and other electronic devices from tariffs last week.
But comfort is short-lived.
The president has since suggested that tariffs “no one is ‘off the hook'” would come, he wrote about the true society as he investigated “the whole semiconductor and electronics supply chain.”
The global supply chain that Apple touted as strength is now vulnerable.
The two world’s largest economies, the United States and China, are interdependent, and Trump’s incredible tariffs disrupt that relationship overnight, leading to inevitable questions.
How Lifelines became a threat
China has benefited greatly from hosting assembly lines of one of the world’s most valuable companies. It was a Western calling card for quality manufacturing and promoted local innovation.
Apple entered China in the 1990s and sold computers through third-party suppliers.
Around 1997, Apple found a lifeline in China, when it was on the verge of bankruptcy as it struggled to compete with its rivals. The young Chinese economy was open to foreign companies to boost manufacturing and create more jobs.
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Apple’s first store in China opened on July 19, 2008 in Beijing, the Sunlitun Entertainment District
It wasn’t until 2001 that Apple officially arrived in China through a Shanghai-based trading company and began manufacturing products domestically. We partnered with Foxconn, a Taiwanese electronics manufacturer operating in China to manufacture iPods, iMacs and then iPhones.
When Beijing began trading with the world – encouraged by the US – Apple has extended its footprint with what has become a factory around the world.
At the time, China was not ready to build an iPhone. However, Apple chose its own supplier and helped them grow into “manufacturing superstars,” according to supply chain expert Lin Xueping.
He cites the example of Beijing Zindiao, a leading manufacturer of high-speed precision machines used to efficiently make high-speed components. The company, which once cut acrylic, was not considered a machine tool manufacturer, but eventually developed a machine for cutting glass, becoming the “star of surface treatment for Apple’s mobile phones.”
Apple opened its first store in Beijing in 2008. This was the year when cities hosted the Olympics and China’s relations with the West were the best ever. This quickly snowballed at 50 stores, with customers waiting in line through the door.
As Apple’s profit margins increase, so does China’s assembly line, with Foxconn operating the world’s largest iPhone factory in Zhengzhou, which has since been called “iPhone City.”
For the fast-growing China, Apple has become a symbol of advanced Western technology – simple yet original and smooth.
Today, most of Apple’s valuable iPhones are manufactured by Foxconn. The advanced chips that power them are made in Taiwan by TSMC, the world’s largest chip manufacturer. Manufacturing also requires rare earth elements used in audio applications and cameras.
According to an analysis by Nikkei Asia, of Apple’s top 187 suppliers in 2024, about 150 owned factories in China.
“For us, there is no supply chain that is more important than China,” Apple CEO Tim Cook said in an interview last year.
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Happy Day: Apple CEO Tim Cook at a meeting in Beijing. Cook visited China and met President Xi Jinping several times.
Tariff Threats – Fantasy or Ambition?
In Trump’s first term, Apple secured exemptions from tariffs it imposed on China.
But this time, the Trump administration set an example for Apple before overturning tariffs on some electronic devices. The sudden tax threat is thought to encourage businesses to make products in the US instead.
“Millions of troops are screwing small screws to make iPhones – that’s what’s going to come to America,” Commerce Secretary Howard Lutnick said in an interview earlier this month.
“President Trump revealed that the US cannot rely on China to manufacture important technologies like semiconductors, chips, smartphones and laptops,” White House press chief Karoline Leavitt replied last week.
She added: “At the president’s direction, these companies are trying to direct manufacturing to land in the United States as quickly as possible.”
But many are skeptical of that.
The idea that Apple can move its assembly tactics to the US is “pure fantasy.”
Friedman said the company has been talking about diversifying its supply chains from China since 2013 when it came to the board meeting in 2013, but the US was by no means an option.
He added that Apple hasn’t made much progress in the next decade, but “really put in effort” after a pandemic in which China’s tightly controlled community lockdown hurts production output.
“The most important new locations for the assembly were Vietnam and India. But of course, most of the Apple Assembly is still in operation. [in China]. ”
Apple did not respond to BBC questions, but its website spans “thousands of companies and over 50 countries” in its supply chain.
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China’s unparalleled supply chain is a huge attraction for foreign manufacturers like Foxconn
Future challenges
Changing to Apple’s current supply chain status will be a major blow to China.
Many of the reasons why we wanted to be a manufacturing hub for Western companies in the early 2000s are still true today – it has created hundreds of thousands of jobs and gives the country a significant advantage in global trade.
“Apple sits at the intersection of tensions between the US and China, and tariffs underline the costs of that exposure,” said supply chain and operations consultant Jigar Dixit.
It may explain why China has not succumbed to Trump’s threat. China is also putting export controls on various important rare earth minerals and magnets in its stores, causing a blow to the US.
However, there is no doubt that US tariffs are being collected by other Chinese sectors.
And it’s not just Beijing facing higher tariffs — Trump has revealed that he will target countries that are part of China’s supply chain. For example, Vietnam, where Apple moved production of Airpods, faced a 46% tariff before Trump suspends for 90 days, so moving production elsewhere in Asia is not an easy way.
“Every possible location of the huge Foxcon assembly site with dozens or hundreds of thousands of workers is in Asia. All of these countries face higher tariffs,” Friedman said.
So, what is Apple doing now?
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First day of in-store sales at Apple’s Store in Guangzhou in September 2024
The company is fighting a tough competition with Chinese companies as the government seeks sophisticated high-tech manufacturing in competition with the US.
“As Apple grows Chinese electronic manufacturing capabilities, Huawei, Xiaomi and Oppo are able to reuse Apple’s mature supply chain,” Lin said.
Last year, Apple lost its position as Huawei and Vivo as China’s largest smartphone sellers. With the Chinese economy slowing down and not spending enough on ChatGpt, which is banned in China, Apple has struggled to maintain its advantage among buyers seeking AI-powered mobile phones. We offered a rare iPhone discount in January to boost sales.
And while operating under President Xi Jinping’s increasingly close grip, Apple had to limit the use of Bluetooth and Airdrop on its devices as the Chinese Communist Party tried to censor the political messages people were sharing. It overcame the crackdown on the tech industry, which even touched on Alibaba founder and billionaire Jack MA.
Apple has announced a $500 million (£378 billion) investment in the US, which may not be enough to soothe the Trump administration for a long time.
Given some U-turns and uncertainty about Trump’s tariffs, more unexpected tax collection is expected – this again leaves the company with almost a cockpit and even shorter time.
Dixit says that smartphone tariffs won’t cripple Apple if they raise their heads again, but regardless, they will put “operationally and politically” pressure on supply chains that don’t immediately unleash.
“Obviously, the severity of the immediate crisis has been reduced,” Friedman says, referring to last week’s smartphone exemption.
“But I don’t think this means Apple can relax.”
Additional Reports by Fan One
