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September, 2018

Apple's risky dependence on China

Original article: The China Times

U.S. President Trump is stepping up pressure on Apple to shift production away from China and back to America's shores. "Make your products in the United States instead of China. Start building new plants now!" Trump said in a September 9 tweet. Apple is concerned that the proposed US$200 billion in tariffs on Chinese goods would adversely impact its watch, wireless headphones and other products.

Analysis:

Apple cannot say it was not forewarned. The world's most valuable public company has not taken Donald Trump and his tariffs seriously. Instead, Apple has acted like the tariffs are typical Trumpian blustering. "Apple CEO Tim Cook had previously brushed off tariff concerns, saying he'd had conversations with Trump about the tariffs," notes CNBC in a September 9 report. 


But there's a difference between The Donald feeding his audience show-stopping bluster such as "We're going to win so much, you'll be tired of winning," and his 30-year history of attacking what he sees as unfair trade relationships that hurt the U.S. Back in the late 1980s, Trump criticized Japan for running a large trade surplus with the U.S. 


At the same time, Apple is used to getting its way - at least in the U.S. In February 2016, Tim Cook publicly criticized the U.S. government for asking the company to decrypt a user's phone for the FBI, which was working on a terror investigation. "At stake is the data security of hundreds of millions of law-abiding people and setting a dangerous precedent that threatens everyone’s civil liberties,” Cook wrote in a statement. Apple never did decrypt the phone. 


Given Apple's professed commitment to data security, it was hard to miss the irony when the company said in July it would comply with China's requests to store all Chinese user data on servers inside mainland China. Apple’s Chinese iCloud partner, Guizhou-Cloud Big Data (GCBD), has direct ties to the Chinese government, according to The Verge. 


Meanwhile, Apple has yet to indicate any possibility that it will shift manufacturing of its products from China to the U.S. Instead, the company released an anodyne statement last week: "It is difficult to see how tariffs that hurt U.S. companies and U.S. consumers will advance the Government's objectives with respect to China's technology policies," the letter said. 


What Apple means to say is that it doesn't want the tariffs to hit its bottom line. Yet as CNBC points out, "In theory, Apple's impressive margins, profit and cash flow could let it absorb some of the increased cost." Apple has a market capitalization of US$1 trillion, earns about $200 billion in annual revenue and has beat Wall Street forecasts in 21 of the past 22 quarters, CNBC notes. 


The alternative, manufacturing in the U.S., would also be costlier for Apple. But it's far from the impossible task that Apple makes it out to be. "It's a particular brand of Silicon Valley arrogance when Apple says it can't make its products in the U.S.," a tech analyst in Taipei told O2O Brand Protection. "Apple should talk to Foxconn," the analyst added, in reference to the Taiwanese contract electronics manufacturer which handles the majority of iPhone assembly. Foxconn has announced plans to build a large plant in Wisconsin to manufacture LCD displays.

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