One of those famed promises of Donald Trump’s is that his policies, now that he’s President-elect, will make Apple bring back their iPhone manufacturing to America. Ever so slightly an odd claim given that they never have been domestically manufactured so “back” isn’t really possible. Further, as one of my colleagues points out, it’s not really true that if tariffs are placed upon Chinese imports then the production will relocate to the U.S. Could well go somewhere even cheaper. There’s also the problem that the U.S. almost certainly doesn’t have the hinterland to be able to produce in such volumes.
But the real problem here is an economic one. There’s absolutely no reason at all why we’d even want Apple to bring back the “making” of iPhones from anywhere. For all the expensive and really productive parts are already made in the U.S., with a little bit going to Japan. China has just the assembly–and that’s such a trivial part of the process that it’s simply not something worth worrying about at all.
Another way to put this is that economics is about value creation and that “manufacturing” of an iPhone creates so little value that where it’s done is a matter of absolutely no interest whatsoever.
“I’m going to get Apple to start making their computers and their iPhones on our land, not in China,” Mr. Trump said in March, a theme he repeated throughout his campaign. “How does it help us when they make it in China?”
The president elect has threatened to impose a 45% tariff on Chinese imports to the country.
The one flaw in this foolproof strategy? Apple can easily avoid taking the hit from Trump’s China tariff by moving production to another country—one even cheaper than China.
Vietnam being an obvious option. And it’s not obvious that there’s the necessary hinterland of the supply chain available:
The answer, experts say, is that while iPhone assembly in the U.S. is theoretically possible, it is highly improbable because of the difficulty of relocating assembly and other parts of Asia’s sprawling electronics chain to the West. While iPhones are designed in California, Apple sources memory chips from Korean suppliers and displays—which are the most expensive component in the iPhone—from Japanese suppliers, then uses Taiwanese companies such as Hon Hai Precision IndustryCo. and Pegatron Corp. to assemble iPhones in mainland China. Apple also uses U.S. suppliers to make components such as glass and radio-frequency parts in the country.
But it’s the economics of this that matter so much. The usual iFixit and the like teardowns tells us that there’s some $7 or $8 of labor in each iPhone. That’s what it costs to piece one together–the cost of their “manufacture.” And that is the thing which is being done in China. Screens are from Japan and possibly Taiwan, chips from Samsung in Austin TX and of course the design from Cupertino. And by far the largest part of an iPhone is the profit margin which very definitely arrives in the U.S. in Apple’s profits.
Think about how important that assembly cost is. At $7 a phone and annual sales of 200 million phones (not right, but close enough) that means that the wage bill here is $1.4 billion. That’s to be compared with a $18 trillion US economy. O.008% of the U.S. economy that is. We don’t even measure GDP to that level of accuracy, we would never be able to notice if Apple did bring it all back.
Even if we say that U.S. wages are higher so that it will be more important–electronics assembly wages are about $13 an hour in the U.S., something like that, as against the $30 a day in China. So, U.S. wages will be about three times China’s, making our number $5.2 billion. It’s still too small for us to be able to see it as a part of the American economy.