Well, well, well.
In a subtle release by US customs early Saturday morning, a list of numbers emerged that are exempt from the 125% tariff imposed on goods entering the country from China.
The code “8517.13.00.00” might not resonate with many, but in the context of US customs, it signifies smartphones.
This designation means that the top Chinese export to the US by value last year is free from the import tariffs, alongside other electronic devices and components such as semiconductors, solar cells, and memory cards.
Given that US Commerce Secretary Howard Lutnick recently declared that escalating tariffs on China aimed to encourage iPhone production in the US, this revelation marks a significant reversal.
The US has now quietly excused its largest Chinese import—and a highly visible finished product—from tariffs without making a public announcement initially.
It’s important to reflect on the implications had this exemption not taken place.
The repercussions of a 125% tariff on Apple’s manufacturing facility in Zhengzhou, eastern China, would soon manifest in American Apple stores, causing significant “sticker shock” amid the tumultuous tariff policies from the White House.
As per insights from Counterpoint, a global technology market research firm, approximately 80% of Apple’s iPhones destined for the US market are produced in China.
The margins on manufacturing for the tech giant are estimated at 40-60%. iPhone prices could have soared closer to $2,000 rather than $1,000. Alternatively, Apple might have chosen to distribute the cost across all its global pricing, but would consumers worldwide accept the burden of the Trump tariff?
A drastic public revaluation of iPhone prices has been avoided, yet may still happen if, as stated by the White House, the previously instituted 20% tariffs on China related to the opioid fentanyl remain intact.
Tim Cook, Apple’s CEO, is a crucial figure in this scenario. He possesses the unique ability to meet with both President Donald Trump and President Xi Jinping of China. It is not far-fetched to anticipate that any resolution in the US-China trade conflict could be facilitated by Cook.
His significant role in connecting the two economies is well recognized, having been chosen by Apple co-founder Steve Jobs for his unmatched knowledge in just-in-time supply logistics.
Things are progressing rapidly. Reports this weekend suggest that trade hawk Pete Navarro is being sidelined in favor of US Treasury Secretary Scott Bessent.
Navarro was the architect of the notorious equation that dictated reciprocal tariff rates in relation to a country’s trade surplus with the US, labeling it “the sum of all cheating”.
Bessent is now at the helm of negotiations with trade partners, aiming to prevent the reimplementation of those rates following the 90-day pause.
After ten chaotic days, a significant question arises: what incentive do other nations have to offer much? The Trump administration appears to be rattled by the bond market’s response to the president’s trade strategies, and there are concerns regarding the safety of US debt for investors.
To prevent effective interest rates on bonds from climbing to 5%, the US needs agreements beyond those with surplus countries.
Indeed, this weekend’s wide array of exemptions represents an astonishing reversal from the principles outlined in the infamous tariff chart that Trump showcased in the Rose Garden.
According to Capital Economics, nearly a quarter of China’s total exports are now exempt from the 125% tariff.
The consultancy notes other significant beneficiaries of these exemptions, with 64% of exports to the US from Taiwan, 44% from Malaysia, and around 30% from both Vietnam and Thailand now also exempt.
The initial 10% universal tariff now has numerous exemptions, primarily benefiting countries with substantial trade surpluses in electronics manufacturing.
The revised tariff framework effectively offers a discount from the universal 10% through these exemptions for nations with the largest surpluses, such as Taiwan with a $74bn surplus and Vietnam with a $124bn surplus.
This starkly contrasts with Navarro’s infamous calculation from last week. In just ten days, we’ve shifted from targeting “looters and pillagers” to granting the biggest exemptions to those with substantial surpluses (aside from China).
Meanwhile, a close ally like the UK, which holds a $12bn deficit with the US—meaning the US exports more to the UK than it imports—is facing a 25% tariff on cars, its largest exports, with medicines, the second largest, likely facing similar charges.
The White House has shifted from asserting that there would be no negotiations regarding the baseline 10% tariffs to providing exemptions for the very products contributing to the deficit, which the entire policy was intended to rectify.
This situation extends beyond a simple “row back”. Some have dubbed it the “Art of the Repeal”. The complex 4D chess has given way to a player struggling to differentiate between opposing pieces while only able to engage in one-dimensional checkers.
The US is now caught in negotiations with bond markets and itself. The rest of the world will be observing the unfolding developments.
