U.S. Customs and Border Protection announced in updated guidance that the government has exempted smartphones, computers and other electronic products from its “reciprocal tariffs.”
China’s number one export to the United States by value last year was exempt from import taxes, along with other electronic devices and components, including semiconductors, solar cells and memory cards.
In the context of U.S. Commerce Secretary Howard Lutnick announcing just days ago that part of the purpose of escalating tariffs on China was to bring iPhone production back to the United States, this was a stunning reversal.
The U.S. has now exempted the largest single Chinese export, and certainly the most prominent manufactured goods, from tariffs without first publicly announcing it.
It’s worth considering what would have happened if this exemption hadn’t been in place.
The impact of the 125% tariff on Apple’s Zhengzhou manufacturing facility in eastern China would start to show in U.S. Apple stores within weeks at most. It would be a totemic “sticker shock” for the White House’s tumultuous promotion of tariffs, the BBC analysis points out.
According to the global technology market research company Counterpoint, as many as 80% of Apple’s iPhones intended for sale in the US are manufactured in China.
The tech giant’s manufacturing margins are estimated to be between 40-60%. Regular iPhone prices could approach $2,000.
Public pricing of new iPhones has been avoided, but could still happen if China’s previously imposed 20% tariffs on the opioid fentanyl remain in place.
Tim Cook, CEO of Apple, is a key player here. He can come to a meeting with both US President Donald Trump and Chinese President Xi Jinping. It is not strange to predict that, if it comes to it, any peace in the US-China trade war could be mediated by Cook.
This is based on its deep foundational role in connecting the two economies. He was chosen by Apple co-founder Steve Jobs for his unrivaled expertise in just-in-time supply logistics.
Now, all of this is happening pretty quickly. Reports in the US press over the weekend claim that White House trade hawk Pete Navarro is also on the side of US Treasury Secretary Scott Bessent.
Navarro was the author of the infamous equation that set so-called reciprocal tariff rates proportional to the size of a country’s trade surplus with the US, calling it “the sum of all the cheating.”
Bessent is now negotiating with trading partners who want to avoid reimposing those rates after a 90-day hiatus.
The big question after 10 days of chaos is what incentive other nations have to offer much here? The Trump administration is clearly spooked by the bond market’s reaction to the president’s trade plans and questions about the safe haven status of US debt for investors.
In an attempt to prevent effective bond yields from rising to 5%, the US needs jobs larger than those of surplus countries.
Indeed, the wide range of exemptions this weekend is itself an incredible reversal from the principle embodied in the infamous tariff scheme that Trump held up in the Rose Garden.
Just under a quarter of all Chinese exports are now exempt from the 125% tariff, according to Capital Economics.
The consultancy suggests that there are other big beneficiaries of the exemptions, with 64% of exports to the US from Taiwan, 44% from Malaysia and just under 30% from Vietnam and Thailand now also exempt.
The universal 10% tariff is now packed with exemptions, with the biggest exemptions going to many nations with huge trade surpluses in electronics manufacturing.
The new tariff equation effectively gives a universal 10% discount (through exemptions) to those with the largest surpluses. For example, Taiwan has a $74 billion surplus with the US, and Vietnam has a $124 billion surplus.
This is the exact opposite of Navarro’s infamous calculation from last week. In 10 days, we have gone from the “robbers and plunderers” who will be hit hardest to (excluding China) those with large surpluses who will get the biggest exemptions.
Meanwhile, an ally like the UK, which according to US figures has a $12 billion deficit – i.e. the US sells more to the UK than vice versa – has a 25% tariff on cars, its largest export of goods, with number two, pharmaceuticals, in line for similar relief.
The White House has gone from clearly suggesting that there will be no negotiations on the basic 10% tariff to offering exemptions for the very products that cause the deficit that the whole policy was supposed to address.
This is much more than “paddling back”. Some have called it “The Art of Recall”.
The US is now negotiating with bond markets. The rest of the world is yet to see how this plays out now, the BBC analysis concludes.
