During his presidential campaign, Donald Trump promised trade reform, often referring to how he would force companies to return manufacturing jobs to the United States. One such company referenced on multiple occasions was Apple, and this has many Apple fans worried because moving Apple’s production lines to the U.S. would increase the cost of its products. So just how much would the iPhone cost if manufactured in the U.S.?
In an interview with the The New York Times on November 23, President-elect Donald Trump talked about a telephone conversation he had with Apple CEO Tim Cook. He urged the CEO to move some of Apple’s production to the United States:
“I was honored yesterday, I got a call from Bill Gates, great call, we had a great conversation. I got a call from Tim Cook at Apple, and I said, ‘Tim, you know one of the things that will be a real achievement for me. Is when I get Apple to build a big plant in the United States, or many big plants in the United States, where instead of going to China, and going to Vietnam, and going to the places that you go to, you’re making your product right here.’ He said, ‘I understand that.’ I said: ‘I think we’ll create the incentives for you, and I believe that you’re going to do it. We’re going for a very large tax cut for corporations, which you’ll be happy about.”Fund Manager Profile: Zhang Hui Of China’s Southern Asset Management
Historically, the Chinese market has been relatively isolated from international investors, but much is changing there now, making China virtually impossible for the diversified investor to ignore. Earlier this year, CNBC pointed to signs that Chinese regulators may start easing up on their scrutiny of companies after months of clamping down on tech firms. That Read More
How feasible is it?
Apple has two partners in Aisa, Foxconn and Pegatron, which, when combined, manufacture more than 200 million of the company’s products. According to Nikkei, which apparently has sources close to them, Apple asked Foxconn and Pegatron to begin investigating the feasibility of moving production.
Pegatron reportedly cited logistical issues and has not delivered any results. However, an initial investigation by Foxconn does give some insight. Based on that investigation, it looks like the iPhone cost would more than double. This is taking into account if all components for the handset were sourced from within the United States. If this were to be the case, the cost to produce an iPhone would go up to $600. Given Apple’s margins, this could see the price of an iPhone reach $2,000.
MIT Technology Review has done another analysis of the costs associated with moving production, although it took a slightly different approach: only moving production back to the U.S. and sourcing from abroad. It found that taking this approach would only see prices rise by about 5%. If manufactured in the U.S., the increase in iPhone cost would be $40, with the consumer having to foot the bill.
More complex proposition
According to IHS Markit Technology Chief Analyst Dan Panzica, one serious point has been missed by all, and that is the amount of people Foxconn and Pegatron can call upon at a moment’s notice to work. In China, the workforce required to manufacture iPhones numbers around 150,000, which is done over two sites. Right now, there is nowhere in the U.S. that could amass such a workforce. Furthermore, no company which currently manufactures in the U.S. has a facility which could hold 60,000+ workers at any one time.
Another headache for Apple is its large and sprawling supply chain of over 750 companies in 20 countries. Each company produces different components, from chips and memory modules, to the iPhone’s display, and more.
President-elect Trump has said he will offer huge tax concessions to companies like Apple, and he will need to do so in order to convince it and others to return manufacturing to the U.S. As for what those tax breaks will be, nothing has yet been revealed. We’ll probably have to wait until after his January 20 inauguration to find out. However, because the infrastructure does not exist to make it happen, it could be a long time before we see this production move happen.