Several years before Donald J. Trump entered politics, Apple and its partners built massive factories across China to assemble iPhones. Mr. Trump first campaigned for president by promising his supporters that he would force Apple to make those products in America.
Nearly a decade later, little has changed. Instead of bringing its manufacturing home, Apple shifted some production from China to India, Vietnam and Thailand. Almost nothing is made in America, and an estimated 80 percent of iPhones are still made in China.
Despite years of pressure, Apple’s business is still so dependent on China that the tech giant can’t operate without it. Moves by the Trump administration to change Apple’s behavior risk damaging the world’s most valuable publicly traded company. And any serious effort to move Apple’s production to the United States — if that is even possible — would take a titanic effort by both the company and the federal government.
In the four days after President Trump announced taxes on Chinese exports of 145 percent last month, Apple lost $770 billion in market capitalization. It regained some of those losses after Mr. Trump gave consumer electronics manufacturers in China a temporary reprieve.
On Thursday, Apple reported $24.78 billion in quarterly profit, a 4.8 percent increase from a year ago, a result of strong sales of apps and services and a new, lower-priced iPhone, which the company introduced in February. China was the only region where it didn’t increase sales during the quarter.
An Apple spokesman declined to make any company executives available for this article. During a call with Wall Street analysts on Thursday, Tim Cook, the company’s chief executive, said Apple had more than 9,000 suppliers in the United States and planned to open a factory in Houston to make artificial intelligence servers.
David Yoffie, a professor at Harvard Business School who has written case studies on Apple, said the scrutiny was warranted because “they’re the company most at risk in a complete breakdown of the United States and China.”
Gene Munster, a managing partner at Deepwater Asset Management, which invests in emerging technology companies, estimates that a complete breakdown between the United States and China would cut the value of Apple in half or more. It would drop to being a $1.6 trillion company from a $3.2 trillion company because about a third of its sales are tied to products made in China, even if it shifts some production to other countries. And the value could drop to $1.2 trillion if it also lost its sales to Chinese customers, as its rival Samsung did after a dispute between South Korea’s and China’s governments. Beijing has already discouraged iPhone purchases by government employees.
A major drop in Apple’s value would ripple through the stock market. The company accounts for about 6 percent of the S&P 500 index. That means for each dollar invested in the fund, about 6 cents goes to Apple stock. Investors, and most 401(k) owners, would see that stake cut in half.
Apple’s roots in China run deep. Decades ago, the company worked with Beijing to set up manufacturing in China without creating a joint venture with a Chinese company, as required of many U.S. businesses. It then perfected the art of assembling devices inexpensively in China and selling products to the country’s growing middle class. The combination has earned it more than 80 percent of global smartphone profits and generated $67 billion in annual Chinese sales.
Over time, the company’s ties to China have strengthened. Today, not only does it make most iPhones in China, but its Chinese suppliers also assemble parts for devices made in India and manufacture components and AirPods in Vietnam.
Apple’s dependency on China has made its supply chain something of a Rorschach test for the Trump administration, which wants to bring more electronics manufacturing to the United States. Apple has more power than any other electronics company to deliver on the administration’s goal. It makes more smartphones than anyone else and spends more money on components than rivals, giving it tremendous sway over where its suppliers operate.
The Trump administration wants Apple to begin that process. In an April television interview, Commerce Secretary Howard Lutnick said that “the army of millions and millions of human beings screwing in little, little screws to make iPhones — that kind of thing is going to come to America.”
But pressuring Apple to leave China could backfire. The new tariffs could force Apple to raise iPhone prices or accept smaller smartphone profits. Samsung phones, which are made in Vietnam and not subject to Chinese tariffs, could be cheaper by comparison. Apple could become less competitive at home — a red line that Mr. Trump seldom wants to cross.
Apple has resisted making iPhones and other devices in the United States because the company’s operations team has determined that it would be impossible, said two people familiar with the analysis who spoke on the condition of anonymity. A decade ago, it had a bad experience sourcing screws and finding reliable workers to assemble a Mac computer in Texas.
In China, Apple’s suppliers are able to bring together 200,000 people. They work at factories supervised by thousands of engineers with years of manufacturing experience. Most live in dormitories near the iPhone plant, where displays and other components move down assembly lines longer than a football field.
Finding that many employees and experienced engineers would be impossible in most American cities, said Wayne Lam, an analyst with TechInsights, a market research firm. He said Apple would need to develop more automated processes with robots to make up for the smaller population in the United States.
Mr. Lam estimates that if Apple did set up operations in the United States, it would need to charge $2,000 for an iPhone — up from about $1,000 now — to keep its current profits. The price could drop to $1,500 in future years as the company reduced the costs of training employees and making components.
“In the short term, it’s not economically feasible,” Mr. Lam said. He added that it also made little sense to relocate production of a device that was nearly 20 years old and could be disrupted by a new gadget that caught on with consumers.
Apple has shown a willingness to move its supply chain when there are incentives. In 2017, it began a process to make iPhones in India because the country had high taxes on imports that would have made prices increase to a point where Apple could not have claimed a slice of the world’s fastest-growing smartphone market.
Today, Apple makes about 20 percent of its iPhones sold around the world in India. It also makes some components there, including the metal frame. But it relies on Chinese companies to assemble the displays and other complex parts.
Matthew Moore, who spent nine years as a manufacturing design manager at Apple, said India had another advantage that America didn’t: “Engineers, everywhere.”
To lure Apple and electronics companies to the United States, Mr. Moore believes, the Trump administration will need to invest in education for degrees in science, technology, engineering and math. He also thinks that the country should encourage loans for new manufacturing facilities, much as it does for housing with Fannie Mae and Freddie Mac.
Last month, Apple bought itself a temporary break. Mr. Cook, who personally donated $1 million to Mr. Trump’s inauguration, lobbied the Trump administration for the exemption it gave to iPhones and other electronics from the 145 percent tax on Chinese exports. It’s temporary, though. The administration has said it plans to issue more targeted tariffs on tech products.
Without government investments, Apple and smaller manufacturers will continue making things in China because it has excess equipment and engineers, said Mr. Moore, who started Cruz, a company that makes hardware products like blenders.
“I don’t think the ship has sailed, but it’s absurd to think in four years we’re going to make iPhones here,” Mr. Moore said. “It would take 10 years.”
Source: nytimes.com
