Importance Score: 65 / 100 🔴
Prior to Donald J. Trump’s foray into politics, Apple Inc. and its collaborators established vast factories across China to produce iPhones. Mr. Trump initially ran for the presidency by vowing to compel Apple to manufacture these products domestically.
Apple’s Manufacturing Shift
Nearly a decade has passed, yields minor changes. Instead of repatriating its manufacturing to the U.S., Apple transitioned some production from China to India, Vietnam, and Thailand. Virtually nothing is manufactured domestically, with an approximated 80 percent of iPhones still assembled in China.
Impact of Trade Policies
Despite years of pressure, Apple’s business model remains deeply entrenched in China. Moves by the Trump administration to alter Apple’s operations pose threats to the world’s most valuable publicly traded firm. Any substantial effort to relocate Apple’s production to the United States would demand a monumental effort from both the company and the federal government.
Following President Trump’s declaration of tariffs on Chinese exports last September, Apple’s market capitalization plummeted by $770 billion over four days. The tech giant recouped part of these losses after Mr. Trump granted a temporary exemption to Chinese consumer electronics manufacturers.
Wall Street’s Expectations
On Thursday, Wall Street analysts anticipate that Apple will report a 4 percent increase in sales for the most recent quarter, driven partly by consumers rushing to purchase iPhones before the tariffs took effect. Analysts will scrutinize Apple’s chief executive, Tim Cook, on potential future tariffs, pricing strategies, and the company’s prospects in China and the United States.
Risks and Investment Consequences
A representative from Apple declined to make any company executives available for comment. This year, the company announced plans to invest $500 billion in the United States over the next four years, including the production of artificial intelligence servers in Houston starting in 2026.
Analysts’ Insights
David Yoffie, a professor at Harvard Business School with expertise in Apple case studies, stated that scrutiny is justified because “Apple is the company most vulnerable in a complete breakdown between the United States and China.”
Gene Munster, managing partner at Deepwater Asset Management, estimates that a complete breakdown in U.S.-China relations could halve or severly reduce Apple’s market value. Munster suggests that Apple could drop from a $3 trillion company to around approximately $1.6 trillion, as about a third of its sales are linked to products manufactured in China, even with production shifts to other countries.
If Apple also lost its sales to Chinese consumers, it could face additional declines, mirroring Samsung’s experience after disputes between South Korea and China. Beijing has already dissuaded government employees from purchasing iPhones.
Market Implications
A substantial drop in Apple’s value would resonate throughout the stock market, as the company accounts for about 6 percent of the S&P 500 index. This means for every dollar invested in the fund, approximately 6 cents is allocated to Apple stock. Investors, including most 401(k) holders, would witness that investment significantly diminish.
Apple’s Deep-Tied Connection to China
Apple’s roots within China are substantial. Decades back, the company collaborated with Beijing to establish manufacturing without necessitating a joint venture with a Chinese firm, a requirement for many U.S. businesses. Apple subsequently mastered the art of cost-effectively assembling devices in China and selling to the country’s burgeoning middle class. This strategy has secured more than 80 percent of global smartphone profits and generated $67 billion in annual Chinese sales.
Strengthening Ties
Over time, Apple’s involvement in China has deepened. Today, it manufactures most iPhones in China, with Chinese suppliers assembling parts for devices made in India and producing components and AirPods in Vietnam.
Apple’s dependence on China has rendered its supply chain a complex challenge for the Trump administration, aiming to bolster domestic electronics manufacturing. Apple’s influence surpasses any other electronics company to realize this objective. The tech behemoth produces more smartphones than its rivals and invests heavily in components, granting it substantial control over suppliers’ operations.
Administrative Anticipations
The Trump administration aspires to initiate this transition. Secretary of Commerce Howard Lutnick stated in an April television interview that “the army of millions manufacturing iPhones — that kind of work will migrate to America.”
Implications and Challenges
However, pressuring Apple to depart China could backfire. The fresh tariffs might compel Apple to elevate iPhone prices or accept reduced smartphone profits. Samsung phones, manufactured without Chinese tariffs, could offer more competitive pricing. Consequently, Apple could falter in the domestic market — a scenario Mr. Trump often seeks to avoid.
The Challenges of Domestic manufacturing
Apple has resisted manufacturing iPhones and other devices in the United States, citing insurmountable obstacles, according to informed sources. A decade ago, Apple’s operations faced difficulties in Texas, struggling to procure screws and find reliable workers to assemble Mac computers.
The Complexity of Production in China
- Skilled engineers and assistants work at plants overseen by thousands of experienced engineers
- In the United States, sourcing that many workers and engineers would prove unattainable amidst population constraints.
Experts assert that Apple would need to invest in more automated processes to compensate for the smaller U.S. workforce.
The Feasibility and Cost Efficiency
Estimates suggest that establishing operations in the United States might necessitate a $2,000 price point for the iPhone. This would gradually decrease to approximately $1,500 as the company reduces training and component costs.
“In the immediate term, it’s not economically viable,” Mr. Lam said. Additionally, it would make little sense to relocate production of an aging device that could become obsolete with the advent of new technologies.
Adapting the Supply Chain
Apple has demonstrated a willingness to adjust its supply chain when incentives align. In 2017, it initiated iPhone production in India due to high import taxes, which would have inflated prices, hindering market penetration in the world’s fastest-growing smartphone market.
Currently, Apple manufactures about 20 percent of its global iPhone sales in India, alongside certain components like metallic frames. However, it relies on Chinese firms for assembling complex parts and displays.
The Advantages of Indian Manufacturing
Matthew Moore, a former manufacturing design manager at Apple, cites India’s advantage as an abundant engineering workforce, a resource the U.S. currently lacks.
Incentivizing Domestic Production
To attract Apple and electronics firms to the United States, Moore proposes investing in STEM education and facilitating loans for new manufacturing facilities, similar to the housing market’s approach with Fannie Mae and Freddie Mac.
Last month, Apple secured a temporary exemption. Mr. Cook, who contributed $1 million to Mr. Trump’s inauguration, advocated for the exemption granted to iPhones and other consumer electronics from the 145 percent tax on Chinese exports. Yet, this reprieve may also be temporary, with the administration planning more targeted tech product tariffs.
The Future of Manufacturing
Without government investments, Apple and smaller manufacturers will likely continue producing in China, where excess capacity and engineering prowess are readily available, according to Moore. He emphasizes that while it’s not too late, achieving domestic iPhone manufacturing within four years would be implausible. “Ten years would be more realistic.”