Despite trade truce with China, Silicon Valley is not out of the woods

A couple walking out of the flagship Apple Store in Beijing

By Michael WilnerWashington Bureau Chief

May 15, 2025 3 AM PT

Share via
- Email
- Facebook
- X
- LinkedIn
- Threads
- Reddit
- WhatsApp

The Commerce Department could decide to impose separate import duties on tech products over specific national security concerns.
Trump’s focus on trade with Europe has been on tangible goods, but officials there want to account for the use of U.S. digital services to level the playing field.

WASHINGTON — Markets rejoiced this week over news that the Trump administration, after six weeks of maximalist rhetoric, had struck a preliminary deal with China to lower tariff rates between the two countries. Tech stocks led the rally, with investors hopeful that President Trump had finally retreated from plans for a protracted trade war with a vital trading partner.

But the celebration may be premature, industry insiders, foreign diplomats and market experts said, telling The Times that Silicon Valley will face strong headwinds in the months ahead — the makings of a perfect storm of uncertainty that could still tip the U.S. economy into recession.

Investigation at Commerce

Wall Street reacted with similar exuberance last month on word that tech products, such as smartphones and computers, would be exempt from Trump’s 145% tariffs on China — a figure that was reduced in the deal struck on Monday to 30%, marking a significant reduction, but still far higher than tariffs have ever been on Chinese imports.

And yet the April 12 White House announcement outlining exemptions was widely misunderstood as a walk-back. In fact, those tech products, including the iPhone, are exempted from existing tariff rates only temporarily, because the Commerce Department is conducting an ongoing review of whether to impose separate import duties on the sector over specific national security concerns.

The investigation, under Section 232 of the Trade Expansion Act of 1962, is progressing, with the Commerce Department recently ending its acceptance of public comments. The department, led by Secretary Howard Lutnick, could issue findings anytime in the coming months, alongside a tariff rate of unknown size that may severely affect Silicon Valley companies.

The review is causing uncertainty in its own right. But Lutnick has indicated that action is forthcoming. He has repeatedly advocated for the iPhone to be manufactured in the United States — a process that would require a large, skilled workforce in high-tech manufacturing produced by the very universities being targeted by the Trump administration, and would substantially increase the price of computing products for American households.

Scott Bessent, the Treasury secretary who has earned greater confidence than Lutnick from the business community, is the one leading trade negotiations with China, where many of those products are made. That has Silicon Valley executives questioning which one of them is in charge, and whom they should be speaking with, according to one tech executive, speaking on condition of anonymity because they are not authorized to speak publicly.

“The core issue for Silicon Valley lies in the uncertainty and potential cost disruption these bring to critical technology components, especially semiconductors,” said Subhajyoti Bandyopadhyay, a professor of information systems and operations management at the University of Florida.

“While ostensibly about national security, the application of these investigations can introduce significant volatility into supply chain planning and investment decisions. Companies might hesitate to commit to certain sourcing strategies if there’s a persistent threat,” he added. “All of which is to say that there will be quite a bit of turbulence ahead for strategic planners of Silicon Valley firms.”

Looming battle with Europe

Announcing the reduction in trade tensions with China on Monday, Trump turned his attention to the European Union, another major trading partner, and levied a threat.

“The European Union is in many ways nastier than China,” the president said. “They’ll come down a lot. You watch. We have all the cards. They treat us very unfairly.”

But the Europeans believe they have some cards, as well.

Trump’s focus on trade with Europe has been on tangible goods, such as agricultural products, manufactured items, pharmaceuticals and cars — a grouping of products that on their own would show a significant U.S. trade deficit with the continent. But European officials use different math. They want to account for European use of U.S. digital services to level the playing field.

One European official, granted anonymity to speak candidly, said that the taxation of digital services — such as online advertising, social media platforms and streaming services — is expected to be a “significant” component of the upcoming negotiations.

“Silicon Valley should be very concerned,” said Michael Strain, director of economic policy studies at the American Enterprise Institute. “The U.S. really stands to lose if there are certain tariffs that are brought to services, and I think people in the U.S. understand that, and would try to prevent it from happening.”

Targeting the U.S. digital sector offers Europe potent leverage in negotiations with the Trump administration, not only because it represents such a large portion of the American economy, but also because it applies acute pressure on Trump’s political allies in Silicon Valley — a tactic that could ultimately persuade him to cave.

“Trump blinked on the China tariffs at least in part because China aggressively retaliated,” Strain said. “That will be interesting to watch if other trading partners modify their strategy: learning that punching the bully in the nose is the right thing to do.”

Rates remain high on China

One of Trump’s first calls on Monday morning after announcing his temporary truce with China was to Apple’s chief executive, Tim Cook. “He’s going to be building a lot of plants in the United States for Apple,” Trump said. “We look forward to that.”

Apple can’t build them fast enough. Although it committed $500 billion in investments over the next four years in U.S. production, including new plants and a manufacturing academy, uncertainty in the interim will force the company to make hard decisions on its product lines.

Despite some protection from the exemptions in place as the Commerce investigation proceeds, the California tech giant still faces hurdles from the tariffs that remain high across supply chains — not just in China, where rates remain at 30%, but also elsewhere in Asia, including India and Vietnam, which face 10% import duties. In the most recent earnings call, before the China deal was announced, Cook estimated that Apple could incur a $900-million hit from tariffs.

“For companies like Apple, and indeed much of Silicon Valley, this overall environment isn’t just about weathering a storm; it’s about fundamentally rethinking global operations,” Bandyopadhyay said. “We’re already witnessing the strategic pivots.”

To offset the costs of tariffs, Apple could increase the prices of iPhones in the fall. But the company also has to walk a fine line both politically and financially. The Trump administration has been critical of companies such as Amazon that have considered showing consumers the impact of tariffs.

“This is all sort of a game of poker, and also remember, Tim Cook is 10% politician, 90% CEO,” said Dan Ives, a Wedbush Securities analyst who covers the technology sector.

Ives said the upcoming iPhone 17 could cost $100 more than the current model, but his firm estimates that could reduce demand by 5%, delaying consumers’ purchases of new devices. Other analysts said it is tough to say if prices will increase, with the smartphone maker keeping prices relatively stable in recent years.

The debate over Apple’s fate has proved to be a sensitive point in U.S. negotiations with Beijing. Last month, the Chinese Foreign Ministry recirculated a video from a visit Cook made to China in 2017, in which he explained why Silicon Valley companies find themselves so reliant on the Chinese supply chain.

“The popular conception is that companies come to China because of low labor costs. I am not sure what part of China they go to, but the truth is China stopped being a low-labor-cost country many years ago,” Cook said at the time. “The reason is because of the skill, the quantity of skill in one location, and the type of skill it is.”

“The products we do require really advanced tooling and the precision that you have to have in tooling and working with materials that we do are state-of-the-art,” he added. “If you look at the U.S., you could have a meeting of tooling engineers and I’m not sure we could fill a room. In China, you could fill multiple football fields.”

Times staff writer Queenie Wong in San Francisco contributed to this report.