By Jon Dougherty
(NationalSentinel) Virtually no one inside Washington’s political, academic, and media establishment believes in President Donald Trump’s approach to trade with China — specifically his imposition of tariffs on hundreds of billions of dollars’ worth of goods in order to secure a better trade arrangement for the United States.
But by several measures, the president’s tariff regime is working, as evidenced by the latest indicator: Apple says it will shift some 30 percent of its production out of China not only due to the tariffs but also because of uncertainty over the future of trade between both countries, according to Nikkei.
And this comes after a Foxconn exec warned that the biggest maker of iPhones in China was ready to shift production elsewhere.
As for Apple, the word from Nikkei is that the suppliers of iPhones, iPads, MacBooks and Apple Ear Pods have all drawn up plans to move 15-30 percent of their production outside of the mainland, with India, Vietnam, Mexico, and Malaysia looking like the top alternatives.
“We need to know where those big assemblers are heading to so that we can initiate our plan too,” an executive at an Apple component supplier told Nikkei.
At this point, even if the Trump administration does not go ahead and slap tariffs on an additional $300 billion in Chinese goods, Foxconn, Pegatron, Wistron, Quanta Computer, iPad maker, Compal Electronics, and AirPods makers Inventec, Luxshare-ICT and Goertek “have all been asked by Apple to evaluate options outside of China,” Zero Hedge reports.
What does it all mean? One way or another, it looks like millions of jobs are leaving China in the near term, due in part to the trade war but also to demographics (lower birth rates in China).
The California-based tech giant’s request was triggered by the protracted trade tensions between Washington and Beijing, but multiple sources say that even if the spat is resolved there will be no turning back. Apple has decided the risks of relying so heavily on manufacturing in China, as it has done for decades, are too great and even rising, several people told Nikkei.
“A lower birthrate, higher labor costs and the risk of overly centralizing its production in one country. These adverse factors are not going anywhere,” said one executive with knowledge of the situation. “With or without the final round of the $300 billion tariff, Apple is following the big trend [to diversify production],” giving itself more flexibility, the person added.
China has been the production base on which Apple’s global success has been built over the past two decades. The country has not only been able to rally hundreds of thousands of skilled workers at short notice to fill rapidly rising orders as the company grew, but an extensive and complex ecosystem of components, logistics and talent has built up in and around Apple manufacturing sites.
Some 5 million Chinese jobs rely on Apple’s presence in the country, including those of more than 1.8 million software and iOS App developers, according to a study available on the company’s website. Apple itself employs 10,000 staff in China, the company said.
Changes aren’t going to happen overnight, mind you, but they are nevertheless coming:
Suppliers admit that replicating this network elsewhere will take time, and China is likely to remain Apple’s most important manufacturing base for the foreseeable future. “It’s really a long-term effort and might see some results two or three years from now,” said one supplier.
“It’s painful and difficult, but that’s something we have to deal with.”
But the trade war has prompted Apple to seriously consider meaningful diversification for the first time, say several sources. At the end of last year, the company began to expand its so-called capital expense studies team, according to sources familiar with the matter.
The team of more than 30 people is discussing production plans with suppliers and negotiating with governments over financial incentives they might be willing to offer to attract Apple manufacturing, as well as regulations and the local business environment.
A full cessation of the trade war might make Apple think twice about shifting its production elsewhere, though the company will likely begin making the transition anyway due to uncertainty over whether it could heat up again.
As for the Trump economy, Fox Business host Stuart Varney notes that he’s made it ‘rain money’:
Can we be clear on this?
When it comes to money, America is the only game in town. The money is pouring in from all over the world.
Think about this: Every day, trillions of dollars slosh around the world. It’s looking for a good yield, interest. And it’s looking for safety — you get both in America. That’s why money from overseas is flooding in here.
Our economy is expanding. Our currency is king of the hill, and yes, when you lend money to us we actually pay interest.
- Follow Jon Dougherty on Twitter at @JonDougherty10
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