Tariffs, trade deficits, and iPhones: Why 2025’s exemptions tell a different economic story

When President Trump returned to the White House on January 20, 2025, he swiftly reinstated sweeping tariffs on imports, promising to fix America’s trade deficit and revive manufacturing. In a marked policy shift, the administration exempted consumer electronics, especially iPhones and Apple computers from the new tariffs. This exception signals an important economic reality: broad tariffs on top tech products harm U.S. consumers and companies as much as they affect trade partners. Economics and history reveal why these exemptions matter and why protectionist trade measures routinely fail to deliver their promise.

The McKinley Tariff (1890): Protectionism Backfires

The McKinley Tariff dramatically raised duties, up to 70% for tinplate and nearly 49% for wool. Intended to protect domestic industry, it resulted in higher consumer prices and provoked foreign retaliation that hit U.S. farmers, while the trade deficit remained unchanged. A public backlash forced rapid reform.

Smoot-Hawley (1930): A Trade War with Global Consequences

The infamous Smoot-Hawley Tariff sharply increased U.S. trade barriers, triggering retaliatory tariffs worldwide. Exports and imports both plunged, leading to worldwide economic contraction and little or no improvement in the U.S. trade balance at enormous domestic cost.

In 2025, the administration issued new tariffs on a broad array of Chinese imports yet explicitly excluded smartphones, computers, semiconductors, and related electronics. Multiple sources confirmed these carve-outs and their scope:

• The White House’s memorandum formalized key exceptions, notably for Apple, Nvidia, and major chipmakers.

• A C.H. Robinson Client Advisory detailed that the exemptions cover iPhones, MacBooks, storage devices, and chips mostly produced in China, with shipments already in transit as of April 9, 2025 also “grandfathered” under the previous rules.

This exemption reflected not only industry lobbying but growing awareness that tariffs on global electronics severely disrupt U.S. supply chains and cause direct consumer price hikes. The official justification: avoid critical disruptions and sudden price increases for American households and businesses.

The Global iPhone: Not Really “Made in China”

Most modern consumer electronics, including the iPhone, are the result of complex global supply chains:

• Design: U.S. • Assembly: China • Components: Over 40 countries

Just 3.6% of the iPhone’s value remains in China, according to research by Xing & Detert. Most of the value added accrues to U.S. and allied firms.

Crucially, studies led by Amiti, Redding & Weinstein found that tariffs imposed on China-made iPhones were entirely passed through to U.S. customers and businesses, with no cost being absorbed abroad.

Similarly, U.S. manufacturers like Boeing depend on highly internationalized supply chains, 70% of components for some aircraft models are sourced globally. When tariffs or foreign retaliation hit, the damage is often felt more acutely at home, affecting U.S. jobs and export competitiveness.

Trade deficits are governed by macroeconomic factors—specifically national savings, investment, and foreign capital flows not primarily by tariff policy. As Krugman, Melitz, & Obstfeld explain in their leading textbook, imposing or raising tariffs does not address the underlying causes of the U.S. trade gap.

Recent empirical research confirms this. A study by Fajgelbaum et al. on the 2018–2019 U.S. tariffs found no sizable effect on the trade deficit; instead, U.S. exports fell, domestic prices rose, and the policy imposed broad extra costs on Americans.

The 2025 carve-out for consumer electronics is not just about corporate power. It is a de facto recognition that across the board tariffs are counterproductive in a deeply integrated global economy. These exemptions help prevent shocks to supply chains and shield U.S. consumers from unwarranted price hikes, while acknowledging that most of the value added from assembling Apple devices in China returns to American and allied firms.

Lasting economic gains come not from raising barriers, but from:

• Investing in research and STEM education • Expanding workforce digital skills • Upgrading infrastructure • Building resilient yet open supply chains

America’s most successful periods have been those of engagement and adaptation, not isolation.

The 2025 exemptions for iPhones, Macs, and key electronics underscore a central truth: tariffs have never fixed the U.S. trade deficit, and they are even less suited for today's interconnected tech ecosystem. These carve-outs represent an implicit concession. Progress requires innovation, openness, and smart policy, not the walling-off of critical industries.

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Phar Kim Beng is Director of the Institute of Internationalization and ASEAN Studies (IINTAS), Professor of ASEAN Studies in International Islamic University of Malaysia (IIUM) and a former Head Teaching Fellow at Harvard University.