How Apple and Its iPhone Customers May React to Tariffs
What will Apple do, now that it needs to pay a 54% (or maybe 104%) tariff on the iPhones it imports from China?
It’s especially tricky to attempt to predict how Apple will respond. We do know a few things, though:
Currently, Apple imports virtually all of its iPhones, and most of its other products including iPads and Mac computers, from China.
Apple has famously protected its pricing tiers through thick and thin. Whatever happens, with pandemic supply shocks, changing consumer preferences, or other factors, Apple changes prices only when it launches new models, and often not even then.
Apple has enviable gross margins which it also fiercely protects but also afford it some presumed flexibility in responding to events like import tariffs.
We think that Apple will be reluctant to increase prices, especially before the launch of the next generation of iPhones, likely in September 2025. And we have two data indicators of how consumers may react to any price increase that Apple determines it needs to impose. We can look at how many iPhone buyers already pay more than the “base” price for their phone by purchasing an upgraded storage model. And we can look at how iPhone buyers pay for their new phones and how that might affect their reactions to higher prices.
The elephant in the room is how iPhone owners might wait to buy their next phone, and we have some thoughts about that, too.
Fundamentally, iPhone buyers have significant flexibility as to what they end up paying for a new iPhone. Most models offer three levels of upgraded storage with upcharges ranging from $100 to $500. A significant percentage of customers partake of that, with about half upgrading over the base level of storage for their model (Chart 1).