The total cost of iPhone manufacturing is likely to go up by 43%, according to analysts quoted in a Reuters report. This includes manufacturing, testing, and other overhead costs that Apple incurs while making the phones. — AFP
Welcome to tariff world.
If you haven’t been paying attention, US President Donald Trump rolled out blanket tariffs on, wait for it, the entire world last week.
Trump imposed tariffs on essentially every nation, including a few islands inhabited only by penguins (penguins are tricky, I guess) in a bid to Make America ... yeah, yeah, you know the rest.
Malaysia got hit with a 24% tariff which is expected to reduce its exports volume to the US. But Malaysia’s pretty diversified economy with 60% of GDP coming from the service sector is largely expected to help mitigate the effects of that tariff.
But Malaysia got lucky with its tariff number, which, by the way, was supposed to be a reciprocal tariff but turned out to be calculated using the trading deficit the US has with a country – economists are still trying to figure out why those numbers were used.
Countries like Cambodia and Vietnam got slapped with 49% and 46% tariffs respectively. Lesotho, that global juggernaut in trade (yes, I’m being sarcastic) got lambasted with a 50% tariff, and China, always in Trump’s crosshairs, got a 54% tariff rate, which as of this writing has been raised to 104%!
To put this into perspective Malaysia’s average tariff rate is 5.6%. Tariff rates of 30% or 40% are huge. You would think Malaysia would get an approximately 5.6% reciprocal tariff. But no, Trump likes to go big or go home. And that is exactly what a 104% tariff says.
What do tariffs do exactly?
Tariffs are designed to protect local industries by making foreign goods more expensive. For instance, Malaysia has a 7.4% tariff on agriculture products we import from the US. That is to help the local industry shield itself from US competition as Malaysians would logically turn away from higher priced items and buy cheaper, domestically produced ones.
Let’s look at the 104% tariff on Chinese goods as it relates to the US consumer. Everything China exports to America just got a 104% mark up on it. That could be inconvenient. For instance, Apple is an American company but most of its products are made in China. That means that iPhone 16 Pro Max’s current price of US$1,599 (RM7,181) would be about US$3,262 (RM14,600) with the tariff. So this tariff is there to push American’s to buy the domestic alternative, right? Oh, wait, there is no domestic alternative to an iPhone. Enjoy your US$3,000 smartphone, I guess.
Suddenly, buying a new iPhone in Malaysia is a steal.
But what is the point of tariffs if they’re not protecting specific industries? Trump and his administration have been very clear that they are raising tariffs to bring back manufacturing, to raise tax income to offset debt, and because the world has taken advantage of America for too long.
And yes, when we think of America, we all think of how long-suffering they are with their high wages, high standard of living, and dominant position geopolitically and economically. Trump truly is the economic equaliser hoping to bring sock and T-shirt factories back to the US. But will manufacturing move back?
It’s really not as simple as raising tariffs. Other countries have built advantages to manufacturing that the US does not have, so moving production back to the United States would likely raise the cost of the product. Remember, the US has high wages and a high standard of living. For example, an iPhone built in the United States would cost an estimated US$30,000 (RM134,000) because of the gap in supply chains and the lack of relevant skills available in the US. Suddenly, that tariffed iPhone seems cheap.
The United States has evolved much like Malaysia into a service oriented economy so going back to manufacturing is not their strong suit. Apple CEO Tim Cook – or Tim Apple as Trump once coined him, probably by accident – has said it would take the US a generation to reach the scale required. Manufacturing can’t move on a whim. As we are all about to find out.
What about the idea that tariffs will make Americans rich? Trump has said tariffs “are going to be the greatest thing we’ve ever done as a country” and that they are going to make the US “rich again”. Again, I was unaware the US was poor but it seems to me if manufacturing returns to the US on the scale Trump wants, then these tariffs are largely not getting paid. And if manufacturing doesn’t come back, US citizens are paying 30% or 50% or 104% more for goods than they did before. That doesn’t sound like being rich.
How will Trump’s tariff policy turn out? No one really knows, but it is a good day to be Malaysian and watching all of this from afar.
Avid writer Jason Godfrey – a model who once was told to give the camera a ‘big smile, no teeth’ – has worked internationally for two decades in fashion and continues to work in dramas, documentaries and lifestyle programming. Write to him at lifestyle@thestar.com.my and follow him on Instagram @bigsmilenoteeth and facebook.com/bigsmilenoteeth. The views expressed here are entirely the writer’s own.
