The Trump Administration Reportedly Promised Tim Cook There Won't Be Tariffs On iPhones

Apple CEO Tim Cook at WWDC 2018.Photo: AP

Apple CEO Tim Cook, whose company took in $US17.9 billion in 2017's last quarter from China and has much of its supply chain located there, has been running around trying to slow down a possible US-China trade war threatened by Donald Trump's administration - and while the White House might be largely ignoring his warnings, Cook has apparently secured a promise that Apple products assembled in China will not be included in any US tariffs.

Per the New York Times, Cook has been trying to ease the administration away from the trade war route, though Apple is "stuck in the middle" with Trump recently threatening to add tariffs on $US200 billion in Chinese goods on top of $US50 ($67) billion already planned. One risk for Apple is that whether or not iPhones specifically are left out of US tariffs, elements of their supply chain could be included or the Chinese government could choose to target Apple for retaliation, the Times wrote, with Cook getting the promise as some sort of conciliatory measure:

The Trump administration has told Mr Cook that it would not place tariffs on iPhones, which are assembled in China, according to a person familiar with the talks who declined to speak on the record for fear of upsetting negotiations. But Apple is worried China will retaliate in ways that hamstring its business, according to three people close to Apple who declined to be named because they were not authorised to speak publicly.

Apple fears "the Chinese-bureaucracy machine is going to kick in," meaning the Chinese government could cause delays in its supply chain and increase scrutiny of its products under the guise of national-security concerns, according to one person close to the company. Apple has faced such retaliation before, another person said, and Reuters reported Ford vehicles are already facing delays at Chinese ports.

As Reuters noted, the Trump administration has steered away from targeting tech products for tariffs, but recent developments have indicated Silicon Valley products could be sucked into the fiasco:

A list of tariffs proposed in April largely excluded consumer electronics. But last week, Trump unveiled a revised list that included several categories of chips, raising fears that tariffs could impact the U.S. technology sector.

Interestingly, Cook told CNN earlier this month that "Based on what I've been told and what I see," he didn't predict Trump would levy tariffs on iPhones. It's not clear whether the promise came from the president himself or a member of his administration; the Times mentioned economic adviser Larry Kudlow as one official Cook met with.

According to the report, Apple also fears reprisal for the Trump administration's penalties on Chinese companies Huawei and ZTE (though the White House has since eased off on ZTE in what looked like an awful lot like some attempt to appease Chinese President Xi Jinping). At the same time Cook is trying to temper Trump's aggressive economic stance towards China, the Times added, he's also been meeting with high-profile Chinese leaders including Xi and standing committee member Wang Huning, "an ideological force behind China's deepening authoritarianism" in an attempt to gain favour on the other side.

Apple analyst Gene Munster of the investment firm Loup Ventures told the Times that Cook has been "willing to put a brave face on and work with the Trump administration because they probably have more at stake than any other tech company when it comes to China and the tariffs."

That certainly sounds like a tough position to be in, though keep in mind that Cook is primarily concerned about Apple's bottom line, and it's come with certain ancillary benefits beyond not getting directly sucked into a trade war on the US side. Cook's aggressive lobbying for Republican-backed corporate tax cuts allowed Apple to bring $US252 ($338) billion it had stashed overseas home at sweetheart rates, which it used for a massive stock buyback and Trump used as a bragging point, so perhaps this arrangement could be described as a little more cosy than a "brave face."

In any case, this is yet more evidence that when Cook says he is "not political," he's downplaying how much work he's really put in.

[New York Times]

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