Nintendo’s Tariff Troubles: A Harbinger for Apple?

Nintendo’s recent postponement of Switch 2 pre-orders in the U.S.serves as a stark warning for the tech industry, notably Apple. The delay stems from the lingering tariffs imposed by former President Trump on goods manufactured in China (54%) and Vietnam (46%), two key production hubs for Nintendo. Initially priced at $450, the Switch 2’s retail price is now almost certain to increase upon the rescheduling of pre-orders.This situation raises critical questions about the future pricing of Apple’s iPhone 17, slated for release this September.

The core issue revolves around how thes tariffs affect the “Bill of Materials,” or BoM, the total cost of components needed to manufacture a device. As tariffs increase component costs, companies face a difficult decision: absorb the cost and sacrifice profit margins, or pass the increase onto consumers.

Apple’s Precarious Position: Sticking Up Inventory and India

Apple, heavily reliant on Chinese manufacturing for its iPhones, is facing a similar predicament.While Apple has been boosting production in India, including making Pro models for the first time (the tariff on imports from India is “only” 26%), a meaningful portion of its manufacturing still originates from tariff-impacted regions.

Cupertino has reportedly been stocking up on inventory to soften the blow of the tariffs, due to the expectation that “once they hit, prices will skyrocket,” what this means for consumers is more than just facing possibly higher prices, its deciding whether the feature upgrades are worth the cost increase.

Breaking Down the iPhone 16 Pro’s Cost: A Glimpse into the Future

A recent analysis, referencing data from iFixit and TechInsights, dissects the component costs of a 256GB iPhone 16 Pro to illustrate the potential impact of the 54% tariff on Chinese-made components.

The breakdown reveals the following:

• the total Bill of Materials (BoM) before tariffs is $549.73.
• assembly and testing add an additional cost, bringing the total pre-tariff cost to $580.
• Key components and their costs include:
  • Rear camera array: $126.95
  • A18 Pro chipset: $90.85
  • Display: $37.97
  • 256GB storage: $20.59

currently, Apple sells the 256GB iPhone 16 Pro for $1,100. However, the tariff is applied to the cost of the components, not the final retail price. The analysis estimates that the 54% tariff on Chinese components would increase Apple’s cost by approximately $300 to $847 per unit.

Note: The tariff is applied prior to Apple’s final assembly and marketing costs. The “Cost (With 54% Tariff)” represents the increased cost of the components to apple, not necessarily the final retail price increase.

The Consumer’s Dilemma: Will Apple Absorb the Cost or Pass it On?

the central question is whether Apple will absorb this significant cost increase or transfer it to consumers. In the past, when tariffs were lower (around 10%), Apple chose to absorb the impact. But with a 54% tariff, it’s unlikely they will do the same. As one report suggests, the company will likely “pass some (most? all?) of that extra cost to consumers.”

If Apple passes the full $300 cost increase onto consumers,the 256GB iPhone 17 Pro could retail for $1,400 or more. This would represent a significant price hike and could impact consumer demand, especially given the current economic climate characterized by inflation and uncertainty.

This situation mirrors Nintendo’s, where potential price increases are driven by the same tariff pressures.The launch date of the Nintendo Switch 2 on June 5th and the size of the increase over the original $450 price point “should offer a clue of what to expect when the iPhone 17 series arrives in September.” Nintendo, like Apple, is “famously protective of its profit margin,” suggesting that price increases are almost inevitable.

Navigating the Tariff Terrain: Apple’s Options and Potential Impacts

Apple has several options to mitigate the impact of these tariffs, each with its own set of challenges and implications:

1. Further Diversify Production: Apple could accelerate its shift of manufacturing to countries like India, where tariffs are lower. However, this process takes time and requires significant investment in infrastructure and workforce training.
2. Negotiate Tariff Exemptions: Apple could lobby the U.S. government for tariff exemptions, arguing that the tariffs harm American consumers. Though, the political climate surrounding trade relations with china makes this a difficult proposition.
3. Absorb Some Costs, Increase Prices strategically: apple could absorb a portion of the increased costs while strategically raising prices on certain models or features. This would minimize the impact on consumers while still protecting the company’s profit margins.
4. Redesign for Cost Efficiency: It is unlikely in the short-term for apple to redesign key components of the phone to use cheaper parts or less parts.

Ultimately, the impact of these tariffs will depend on a combination of these strategies. however, one thing is clear: consumers should expect to see higher prices for iPhones and other tech products in the near future.