More expensive iPhones could give China brands an edge

Big changes are coming to the iPhone, but those changes are not all positive. Pressure on Apple to move some manufacturing to the US could push prices higher. This would give China competitors a bigger advantage in the smartphone market, where local companies have slowly been gobbling up more market share. Nikkei reported that Apple asked two of its manufacturing partners, Foxconn and Pegatron, to look into making the iPhone in the US. Pegatron reportedly refused to make a plan for such an event because it would "more than double" the cost of making the phone.

A doubling of costs seems dramatic, but all estimates of the impact of manufacturing within the US show costs rising. The surge would likely be passed onto the consumer.

Apple's cachet, however, holds a lot of power in the market. Many people are not likely to just give up their iPhones, even with a price hike. Some makers have indicated they would follow Apple's lead in this regard. Sharp President Tai Jeng-wu said the company had just opened a new OLED facility in Japan and would manufacture in the US, as well, if Apple wanted them to because the smartphone giant is their "key customer."

Apple does not actually use OLED screens in any of its smartphones yet, but rumors about Apple switching from LCDs have been swirling for a while. News broke recently that Apple wanted to use OLED in its 10th anniversary iPhone in 2017, but supply constraints could hurt those aspirations. However such a move would impact the price of the iPhone, Apple still expects demand to be high enough that the four largest OLED manufacturers, namely Samsung Display, LG Display, Sharp and Japan Display, might not be able to keep up.

One way Apple might get around this, Bloomberg reported, is by giving one version of the iPhone an OLED display and keeping an LCD screen in the other version. This could be another differentiating factor between the iPhone Plus and the smaller version. Apple used a similar strategy with its dual-lens camera, which it only included in the iPhone 7 Plus, not the regular iPhone 7.

Questions about manufacturing in the US are being raisedbecause of the election of Donald Trump, who will become the US president on January 20th. Trump ran a campaign based on bringing manufacturing jobs back to the US and raising tariffs on imports. The president-elect is known for empty rhetoric, though, so it is anyone's guess what he will actually do when he takes office.

Economists are mostly in agreement, however, that there is nothing that can be done to revive the US manufacturing sector, which has grown in value as it shed jobs thanks to automation in making high-value products such as jet engines. This means a trade war with China would not benefit anyone. Even with higher taxes on imports, however, China smartphone makers could reap the benefits of more expensive iPhones. Companies such as Xiaomi and OnePlus have built their businesses on selling high-end smartphones at about half the price of an iPhone. Tariffs that double the price of a China smartphone are probably not politically feasible, even for a populist politician like Trump.