No Bear Market For iPhones This Fall

Did you hear the joke about the two guys who were being chased through the woods by a bear? One guy said to the other, “You know, I don’t need to run faster than the bear to save myself.”

iPhone production from china

ThorstenF / Pixabay

The other guy was puzzled. “Why not?”

“I just have to run faster than you!”

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Now let’s retell the story, this time casting President Donald Trump as the bear. He’s threatening to impose a new 25 percent tariff on an additional $250 billion of goods imported from China.

If the next generation of iPhones is included, that could really hurt Apple. After all, the new models will be out in September, and surely many customers will rebel against having to pay perhaps an extra hundred dollars.

Despite Trump’s misguided presumption that China will be forced to pay the additional tariff, it will ultimately be paid largely by the American consumer. But in the case of the new iPhones, Apple could agree to pay part or all of the tariff. Either outcome would be bad for the company.

It is extremely unlikely, however, that even this drastically high tariff on iPhones will have any effect on Apple, its profits, or its customers. How can that be?

Foxconn, the iPhone’s top contractor, has just announced that it could easily shift its entire production from China to other relatively low-wage Asian nations. Indeed, it already has built about one quarter of that productive capacity outside China – and may someday even begin to assemble iPhones in Wisconsin.

Now let’s get back to our story about the two guys being chased by the hungry bear that looks a lot like Donald Trump. If the bear raises tariffs on iPhones assembled in China, will Foxconn be forced to shift all its production of iPhones out of China?

Obviously not. Only about one of every four iPhones is sold in the USA. So, a worst-case scenario would be to shift up to one-quarter of its production from China to another Asian nation.

Full disclosure: I own Apple stock.




About the Author

Steve Slavin
Steve Slavin has a Ph.D. in economics from NYU, and has written twenty math and economics books, including “The Great American Economy: How Inefficiency Broke It, and What We Can Do to Fix it.” The 12th edition of his introductory economics text came out in September.