Apple just got a big win in Trump’s tariff war. It may have bigger concerns

Apple's iPhone 16 series are displayed for sale at an electronics store in Srinagar, Jammu and Kashmir, on April 17. (Firdous Nazir/NurPhoto/Getty Images via CNN Newsource)

Apple CEO Tim Cook should be breathing a sigh of relief.

The White House on Wednesday ratcheted tariffs on Indian imports up by an additional 25 per cent, raising the total levies on one of the United States’ most crucial trading partners to 50 per cent when they kick in later this month.

But smartphones are exempt from U.S. President Donald Trump’s new levies on India, marking a crucial win for the tech giant as it approaches its most important time of the year: its annual September iPhone launch followed by the holiday season. Apple will also dodge incoming new tariffs on semiconductors, since it’s committed to building iPhone components in the United States, Trump said Wednesday.

That’s not to say tariffs won’t hurt; CEO Tim Cook said tariffs will likely cost the company U.S.$1.1 billion this quarter. But analysts say Apple has bigger concerns, such as its future product strategy and approach to artificial intelligence, a burgeoning field that the tech behemoth is perceived to be behind in.

Under different circumstances, such high tariffs could have spelled trouble for Apple. The iPhone is Apple’s most important product, making up the majority of its revenue. Most iPhones sold in America come from India. And the Americas, which includes the United States, is Apple’s largest market.

“In terms of the longer-term issues, more than a year out, I would say tariffs are probably 20 per cent of it,” said Gene Munster, managing partner at Deepwater Asset Management, who has covered Apple for decades. “I think what’s going on the regulatory environments (is) probably 25 per cent, and 55 is related to how they’re going to capitalize on AI.”

Tariffs are a hurdle but manageable

Tariffs are a challenge for Apple, but one that analysts seem confident the company can manage. A combination of Apple’s diversified supply chain – which it partially shifted to areas like India and Vietnam around five years ago to reduce reliance on China during COVID – along with its high margins and Cook’s operations expertise put the company in a strong position.

Supply chain resilience is “supposed to allow you to adjust tactically to any major changes that comes unexpected,” said Runar Bjørhovde, a research analyst for market research firm Canalys.

That held true even before Apple committed to investing an additional $100 billion in the United States to manufacture iPhone parts domestically on Wednesday.

While moves like these don’t directly impact tariff policy, they do likely help Apple curry favor with the administration, especially as Trump has pressed Apple to build its iPhones domestically.

“Look, he’s not making this kind of an investment anywhere in the world, not even close,” Trump said. “He’s coming back. I mean, Apple is coming back to America.”

Some analysts already expected that the iPhone would be exempt from the upcoming levies on India ahead of Wednesday’s tariff announcement. But the back-and-forth tariff policies, which have changed multiple times throughout the year, make it challenging to predict what could happen in the future.

“Because (smartphones are) such an important category, the relationship that Apple has with both administrations, and specifically, even the U.S. administration, we do think that they will be able to maneuver against this threat,” said Nabila Popal, senior director with the International Data Corporation’s data and analytics team. “But it is important, of course. It does present a risk.”

That said, analysts largely believe India and China are Apple’s only two options for producing U.S.-bound iPhones at scale. And since iPhone models available in the United States don’t precisely match those sold elsewhere, Apple can’t just redirect iPhones intended for different markets. New iPhones sold in America, for example, don’t have physical SIM card slots anymore, and they support millimeter wave 5G, the kind of connection that provides faster, low-latency speeds but usually only at a short distance.

“It’s a massive tactical nightmare to deal with,” said Bjørhovde. “Because you have to try and find a sweet spot and figure out what comes next.”

Cook said iPhones will continue to be assembled outside of the United States for “a while” during an event at the Oval Office announcing the new $100 billion investment on Wednesday. But he pointed to the company’s strategy of instead producing iPhone components stateside.

“Well, if you look at the bulk of it, we’re doing a lot of the semiconductors here, we’re doing the glass here, we’re doing the Face ID module here, and so there’s a ton of it, and we’re doing these for products sold elsewhere in the world,” Cook said. “And so there’s a lot of content in there from United States.”

Apple’s AI troubles

The narrative that Apple is behind in AI has been looming over the company all year – and some analysts see it as a more challenging issue to overcome than tariffs. Apple delayed a high-profile upgrade to its Siri assistant that would have enabled it to provide more personalized answers and act across apps, bringing it up to speed with the agent-like capabilities that Google and OpenAI are pursuing with their digital helpers.

And the company’s rivals are still using that setback as ammunition to promote their own products over Apple’s. Just this week, Google posted an ad for its upcoming Pixel 10 phone that said: “If you buy a new phone because of a feature that’s coming soon, but it’s been coming soon for a full year, you could change your definition of soon.” Apple’s initial batch of AI features also didn’t launch in time for the iPhone 16’s arrival last September.

At the same time, many of Apple’s peers are seeing booming returns from their AI investments. Nvidia (NVDA) and Microsoft (MSFT) both hit $4 trillion in market capitalization in July, a milestone Wall Street previously thought Apple (AAPL) might reach first.

That’s partially because of their fundamentally different products and business models. Apple is a consumer hardware company. In contrast, Microsoft, Meta (META) and Nvidia also provide the tools that businesses rely on to support AI-powered services and features, like cloud computing, chips and AI models.

Still, Apple saw stellar earnings results for the June quarter, surpassing expectations for iPhone sales – including in China – and overall revenue.

But during Apple’s earnings call, analysts pressed Cook about his perspective on AI and what it means for the company’s products. Those questions ranged from whether AI services might be eating into search engine usage, whether the forthcoming Siri upgrade could drive future new products and whether Apple would consider acquiring AI companies to further its product roadmap.

“Taking a step back, we see AI as one of the most profound technologies of our lifetime,” Cook said in his opening remarks during the earnings call. “We are embedding it across our devices and platforms and across the company. We are also significantly growing our investments.”

But Apple can’t risk falling too far behind when it comes to the iPhone’s AI capabilities. By doing so, it could create an opportunity for Samsung, Google and Qualcomm – the three of which dominate the Android phone space – to pull ahead, says Ted Mortonson, managing director and technology sector strategist at financial services company Baird.

“What’s more important with investors is, after the iPhone 17, what do they really do?” he said. “I mean, as far as generative AI and AI functionality, that that’s the real focus on Apple right now.”