Lock-in. If you move off iOS but are using Apple as the identity provider for third party spots, how painful is migrating your accounts going to be? How well do you think Apple will support the use case of non-Apple device users signing in with Apple? Might as well buy another Apple device when the current one breaks.

There's nothing wrong with Apple trying to increase the stickiness of their platforms, if there's a legit argument to be made that it also improves user experience. The part I find distasteful is the requirement for iOS apps to give preferential treatment to Apple. And honestly, if they were only doing doing this to improve UX, I don't think they would be this heavy handed. Somebody with decision making power wants to make sure that iOS users are selecting that option no matter what.