Last Friday, US President Donald Trump was shocked that China had taken revenge against its latest tariff declaration. Thus, the president sent a tweet in which he “ordered” US companies to withdraw from China. Although it is unclear whether the president has this power (Trump’s economic consultant, Lawrence Kudlow, says yes), the tweet could have worried Apple enough to speed up any ongoing plans to eliminate part of its production from China. Since Apple designs the iPhone in the United States and has largely assembled it in China, the product is considered a Chinese import and therefore does not have to pay taxes.
Starting December 15, smartphones sent to the US from China will be subject to a 15% commission. This should have happened on September 1st, but the president delayed the date so that some products, such as the iPhone, would not have to pay the additional fee during the Christmas shopping season. However, as of September 1st, two popular Apple wearable, Apple Watch, and AirPods portable devices will be subject to 15% tax. Whether Apple absorbs all or part of the additional cost or passes it to consumers depends on the company.
In June, an Asia report indicated that Apple was trying to move up to 30% of its total production out of China. It already produces a small number of iPhone models in India, although the facilities are not large enough to replace much of Chinese production. Previous forecasts required that Apple eventually produce 250,000 phones in India every month, from 70 to 80% of total exports.
Apple could take three years to move 20% of its iPhone production from China
If Trump continues his tweet on Friday and orders US companies to leave China, Apple will be surprised without preparation, according to an analyst. It was reported that Daniel Ives of Wedbush Securities has released a report to customers about Apple’s iPhone production. In the title of this report, he says the president’s comments were a gut punch to Cupertino. Speaking of a hypothetical roadmap for moving production out of China, Ives says Apple would take 18 months to move 5% to 7% of iPhone assembly out of the country and three years to move 20% of the production from your phone This would not even cover 25% of Apple’s total iPhone production that goes to the US every year.
Foxconn, the contract manufacturer that Apple relies most heavily on for iPhone production, claims to have the physical facilities to build outside of China the number of units Apple needs for US consumers. Eradicating the production of iPhones in another country takes time and money to form a new workforce and perhaps the biggest obstacle of all is to create a reliable supply chain. Furthermore, withdrawing from China means that a large number of workers in the country could lose their jobs. This would not only make it difficult for them to buy Apple devices, but it could also make the company look bad in the eyes of Chinese consumers; Remember, China is one of Apple’s most important markets.
Apple’s valuation declined by $44 billion only on Friday, although today’s shares have recovered about 30% of what it lost at the end of last week. It is possible that the president’s threat was just another trump swagger. This morning, the president said that China wants very badly to conclude a trade deal. And although this seems to have calmed things down a bit, it should not prevent Apple from working on plans to move much of the iPhone production out of China. After all, why should Apple worry about having this threat in its head now or even in the future?
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