Apples are Chinese

Tom Sangala January 25, 2017

212 1 minute read

“Another way to put this is that economics is about value creation and that “manufacturing” of iPhone creates so little value that where it is done is a matter of absolutely no interest whatsoever.” Tim Worstall, Trump Can’t Make Apple’s iPhone Manufacturing Come Back – And Wouldn’t Help If He Could, Forbes, Opinion, Economy, Nov.17, 2016 @08:01 AM

In his inauguration speech last Friday, Donald trump indirectly reaffirmed his desire to bring back the iPhone assembly from China when he said “we will rebuild America with American labour”.

This started in March 2016, when Trump made it so clear that he would make Tim Cook and his troops start making computers and iPhones on US soil and not China. He punctuated his assertion with a threat, “I am going to impose 40 percent tariff on Chinese imports to the country”.

Now that Trump is at the White House, it will be interesting to see him struggle to actualise this seemingly impossible wish.

Politically, the iPhone is a beacon of US technological might. Economically, it is not a top selling smartphone; in terms of volumes. Its attraction is its invisible profit margins, which is currently the best in the industry. According to Ryan Whitman of ExtremeTech, iPhone 7 costs $400 to manufacture and Apple bags in $249 less logistical expenses in profits.

Hypothetically, Apple would save a skimpy five percent if it was so gullible that it moved production to own turf where wages are not cheap. There are other economics considerations that can easily eat up that minimal saving: Prime amongst which is that the Chinese government has thrown in $1.5 billion subsidies into the equation.

Whether Trump will be prepared to do likewise depends on his whims; which can be as reactive as nuclear.

Half of 800 suppliers for iPhone components are a phone call’s away right there in Chinese soil. The vast majority of the remainder are an hour’s flight away in the nearby Asian countries. These are opportunity costs that require a lot of consideration before Apple trades-in its advantaged position with political scores.

The Foxconn facility in Zhengzhou, China, which is owned by a Taiwanese, Terry Gou, churns out 500,000 iPhones per day. The tech facility has attained this Sapitwa mountaintop of efficiency with the support from the Chinese government.

While Foxconn built the bigger-than-life facilities and the infamous employ dorms, the Chinese government financed the whole road infrastructure network. Upped the ante with the construction of an entire airport to grease export logistics. While the iPhone is merely adored in US, Apple is a spoilt child in China.

Foxconn is closing all the gaps; it is slowly but surely replacing human beings with robots. It is almost impossible to even imagine a divorce in such a romantic union.

After all, aren’t Trump branded hotels elsewhere outside US? It will be easier to first remove the beam from own eye before removing the speck from Apple’s eye.

My lord, I rest my case.