Protectionism vs. Practicality: Why Apple Won’t Come Home

As the U.S. considers imposing a 25% tariff on iPhones manufactured abroad, Apple is under pressure to shift production from India to the U.S. However, such a transition is economically unviable. Producing an iPhone in the U.S. would cost nearly 2x as much as in India, primarily due to higher labor wages, overheads, and regulatory compliance. In contrast, India provides substantial cost advantages, along with 4–6% incentives on incremental sales under the Production Linked Incentive (PLI) scheme and access to a well-integrated supply chain. These factors position India as a strategically superior manufacturing hub, aligning with Apple’s operational and financial priorities.

Donald Trump has reignited the debate around American manufacturing by proposing a 25% tariff on Apple iPhones not made in the U.S., pressing the tech giant to relocate production from India back to American soil.

The tariff proposal reflects Trump’s protectionist economic agenda aimed at bolstering U.S. manufacturing, countering China’s dominance in global supply chains, and pressuring multinational companies to invest locally. Apple’s growing shift to India where ~20% of global iPhones are now produced has drawn political scrutiny. However, industry experts view the proposed shift as economically impractical due to high U.S. labor costs, supply chain complexities, and infrastructure limitations. Apple has expressed no intention of pursuing the proposed shift, pointing to the high economic and logistical barriers of moving production to the U.S.

Why the shift will not work: Key Constraints

Apple Production in India 

Apple has rapidly expanded its iPhone manufacturing footprint in India over the past five years, turning the country into a key global production hub.

India offers compelling advantages

Production Linked Incentive (PLI) Scheme: Apple’s contract manufacturers (Foxconn, Pegatron, Wistron) receive 4–6% reimbursement on incremental sales, incentivizing local production.

Cost Efficiency: Driven by cheaper labor, logistics, and overhead, Apple benefits significantly from India's low production costs compared to the U.S.

The following chart outlines a cost comparison between manufacturing an iPhone in India versus the United States.

Producing an iPhone in the U.S. would more than double the cost, making India a far more viable and profitable alternative.

Why Manufacturing in the U.S. is Not Feasible

Supply Chain Realities

Apple’s supply chain is one of the most sophisticated and tightly integrated in the world, and it is deeply rooted in Asia:

• ~98% of iPhone components are sourced from Asian countries, primarily China, Taiwan, Japan, South Korea, and Vietnam. These include advanced semiconductors, memory chips, OLED displays, camera modules, batteries, and metal casings.
• China alone is responsible for a large share of component manufacturing and final assembly. Taiwan provides core parts such as Apple’s custom A-series chips (via TSMC), while Japan contributes high-precision components like image sensors (e.g., from Sony).
• Final assembly of iPhones happens predominantly in China and India, executed by contract manufacturers like Foxconn, Pegatron, and Wistron. These facilities are strategically co-located with component suppliers to minimize logistics costs and reduce lead times.

Relocating this entire structure to the United States would mean:

• Rebuilding supplier relationships
• Setting up entirely new production clusters
• Facing higher labor, regulatory, and environmental compliance costs
• Losing scale efficiencies and integrated logistics

Labor & Scale Challenges

Labor availability and cost are critical to large-scale manufacturing. The chart below compares key labor parameters between India and the U.S., highlighting why India remains a practical choice for iPhone assembly.

The significant wage gap and limited availability of skilled labor in the U.S. make large-scale electronics manufacturing costly and logistically challenging.

Infrastructure & Capital Requirements 

Building Apple’s scale of production in the U.S. would require replicating the kind of massive infrastructure seen at Foxconn’s Zhengzhou “iPhone City” in China, which is often referred to as the largest iPhone production hub in the world.

Key Requirements Per Factory:

• Size: Each factory needs ~1.4 million square feet of floor space to accommodate multi-line assembly units, inventory buffers, and cleanroom environments.
• Capital Expenditure (CapEx): Estimated at $7–10 billion per facility, factoring in:

   o High-end precision robotics 

   o Automated testing units 

   o HVAC systems for ESD and cleanroom compliance 

   o Wastewater treatment and air filtration units for environmental standards 

   o Worker dormitories or shuttle systems in labor-scarce zones   

• Regulatory Compliance: The U.S. enforces stricter environmental and labor regulations compared to China and India, adding to overhead and timeline delays.

Total Investment requirement to match India/China’s combined output (~40–45 million units/year):

• Building 10–12 such factories.
• Total CapEx between $70–100 billion; and
• Other recurring operational costs like labor, maintenance, utilities, and compliance.

This is a multi-year, multi-decade undertaking. For a company that thrives on speed, agility, and annual model updates, this shift will be fundamentally misaligned with Apple’s DNA.

Even if Apple begins shifting production to the U.S., building equivalent capacity is estimated to take 7 to 10 years would outlast any single political term. By then, the Trump administration unlikely to be in office, making the tariff threat largely irrelevant.

Aranca Takeaway  

Impact on Apple and U.S. Consumers

If Apple is forced to manufacture iPhones in the United States, the implications would be substantial for the company and its customers:

• As previously shown, producing an iPhone in the U.S. costs ~$1,110, nearly double the cost in India (~$550).
• Apple would either:

    o Absorb the cost: Hurting profit margins (currently ~45% on iPhones). 

    o Pass it on to consumers: Pushing iPhone retail prices beyond $1,800–$2,000, depending        on the model.  

• A $2,000 iPhone could push consumers toward:

    o Older iPhone models o Android alternatives (Samsung, Google Pixel) 

    o Delayed upgrade cycles  

Critically, iPhones sold in the U.S. account for an estimated ~19% of Apple’s total revenue (TTM FY24). Any price shock in this segment would have a material impact on top-line performance and margin disruption, making domestic manufacturing not only economically unviable but strategically risky.

• A costlier and slower supply chain could delay new product rollouts.
• Apple might reduce the frequency of hardware refreshes or cut investment in R&D to manage costs.

• Apple may prioritize other markets like China, India, and Europe where margins and unit growth remain strong.
• U.S. consumers could see limited model availability, or longer wait times, as Apple tries to rebalance global supply flows.

Conclusion 

Apple’s premium valuation is justified by its ability to consistently lead in product innovation, command pricing power, and maintain high earnings quality. However, a forced production shift to the U.S. would disrupt this balance, raising costs, slowing innovation cycles, and potentially weakening its competitive positioning and market share over time. 

Given the potential impact from moving iPhone’s production to the US it appears unlikely that Apple will make any significant changes in its ongoing production plans. Further, Apple’s strategic priorities lie in safeguarding operating margins, deepening its supply chain resilience, and capitalizing on scalable growth in emerging markets. Manufacturing in India not only aligns with these goals through cost and policy advantages but also positions Apple closer to one of the world’s fastest-growing premium smartphone markets strengthening its long-term value proposition.