Tariff Uncertainty Within the Smartphone Sector Leaves Everyone Guessing

Perhaps more than any other tariff target, uncertainty is the watchword for the impact on gadget imports to the United States, with a particular emphasis on smartphones. With explicit exemptions for smartphones, computers, and chips announced on the April 12, only to be followed by threats of tariffs the following day, there is growing domestic pressure to maintain consumer access to affordable devices. Despite this, the U.S. administration is not yet ready to make guarantees that it won’t implement further tariffs, with Trump warning that exemptions on smartphones may be short lived and future tariffs could well be on the horizon.

Fast forward to the end of April, most Original Equipment Manufacturers (OEMs) are foreseeing a challenging market. One example is Samsung, which stated on April 29 that “policy risks would increase uncertainty for its chip business, while tariffs would raise prices for smartphone components and put downward pressure on mobile device sales.”

The turbulence remains, but the stark reality is that no one really knows how the tariff situation will evolve or how smartphone componentry such as Secure Elements (SEs) and embedded Subscriber Identity Modules (eSIMs) will be impacted.

According to Capital Economics, tariff exemptions covered 23% of U.S. imports from China. Including such a wide proportion of the highest-value Chinese exports undermines the political show of strength, which is at the heart of the tariff scheme. This may be the best option as China seems utterly unwilling to capitulate. For now, Apple, as part of the April 12 exception announcement, has received a bye in this round of tariffs, but with high levels of ongoing uncertainty, it is uncertain whether Apple will remain unscathed domestically or externally via reciprocal tariffs.

From a componentry standpoint, the United States has a fairly mature semiconductor manufacturing ecosystem, but it remains woefully ill equipped to meet demand domestically, and semiconductor manufacturing is an exceptionally time consuming and expensive capacity to build. In the device assembly stage, labor costs exponentially increase the final cost of handsets, and this is to say nothing of the current dearth of staff skilled in this procedure in the United States, or the time-consuming training that would be required en masse.

Put in its simplest terms, the United States is not equipped to meet demand locally, and the prospect of landing the public with post-tariff devices could prove harmful to the voter base. Tariff exemptions of some form are virtually certain, but how they will materialize and evolve and how long they will last is anyone’s guess.

As it relates to tariffs, there is a lot to unpack, and this is particularly true for the smartphone market. The market does not yet know the full extent of tariffs or how, if at all, exceptions might be implemented. Despite this, what is certain is that a level of damage has already been done and changes to smartphone supply chains, componentry sourcing, manufacturing, and sales are coming.

What to expect and how to adapt precisely is unknown, but from ABI Research’s perspective, these are some of our main expectations moving forward:

• Off on a Technicality: The primary ongoing question is how inclusive the exemption regime will be, with discussions in the upcoming national security tariff investigations being expected to analyze “the whole electronics supply chain.” With executive orders being the modus operandi of the administration, there is every reason to suspect conclusions drawn in this investigation will be similarly controversial and similarly uncompromising in their approach. If the design phase is placed as the highest priority, an argument may be made to exempt domestic designers such as Apple, despite a large proportion of its manufacturing phase occurring in China. This may involve additional costs for Apple in securing the supply chain, or may require changes with domestic manufacturing or increased scrutiny of certain critical components such as SEs or eSIMs.
• More Tailored Tariffs Should Be Expected: Regardless of exact implementation, should the exemptions, in fact, be withdrawn, it is likely that a more tailored set will replace them, and those operating in the United States should expect to see conditions favoring domestic handset manufacturers over Chinese makers such as Huawei, exaggerating the already distinct trend of Apple’s dominance in the West, while Chinese manufacturers hold greater shares domestically and in Asia-Pacific and the Middle East & Africa.
• Market Share Movement: Leading smartphone OEMs in the Middle East & Africa and Latin America, such as Samsung, Xiaomi, and Transsion, may expect to see some increased penetration of higher-end technologies such as SE, Near Field Communication (NFC), and eSIM, as devices originally intended for U.S. import need to find alternative markets, potentially at reduced prices to absorb the loss of the U.S. market for manufacturers. In turn, this could shift regional smartphone OEM market shares and redirect investment from the United States to other target regions.
• Noise, Chaos, and Uncertainty: The rapidity of announcements and threats to repeal exemptions almost immediately after their announcement are disorienting, so manufacturers and ecosystem vendors of all types should respond to the uncertainty and protectionist trend on the whole, rather than attempting to predict details that can be overturned within days or hours. As well as challenges, the global redistribution of trade holds opportunities, and emerging markets are likely to offer strong opportunities for players that can adapt their offering to differing market needs.