Apple Have A Backup Plan for Their Phones If The Trade War Goes Too Far Between U.S.A and China

2019-06-28

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Apple Inc. is thinking about a backup plan for the production of their phones if the trade war gets out of hand.

Considering Apple is making a $6,000 computer, you might not think it would worry about a price hike for the iPhone. But Foxconn, which manufactures many of Apple’s phones, says it could move production out of China if the U.S. puts more tariffs on the country as part of an escalating trade war.

Even if Apple moves iPhone manufacturing out of China, production costs could go up substantially up to 30% thanks to the complex supply lines that made it possible to build millions of iPhones in the first place.

It’s not just iPhones that are manufactured in China. The iPad, Apple Watch, and Macs all have components made there or are partially assembled in Chinese factories. Apple will feel the pinch from tariffs on all these products, which could affect the calculation on whether to pass on the cost to the end users. While most of these big global companies are able to shift production, it doesn’t just happen with the snap of a finger. It requires retraining and hiring more workers, for one thing. The process of reestablishing a supply chain could take 12 to 18 months and comes with its own problems. Almost no place can match the manufacturing might of China at the moment. Shipping from India can add two weeks, and the country doesn’t have the same infrastructure deep-water ports, trains, eight-lane highways as China. The company and Apple fans might be facing price hikes no matter what happens thanks to the ongoing trade war. In May, President Donald Trump raised tariffs to 25 percent on $200 billion worth of Chinese goods. Then he threatened to do the same for an additional $300 billion in imports.


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The tariffs could impact all kinds of products and is already affecting the price of washing machines. If the trade war drags on, the price of an iPhone could jump by up to $160 more, according to some analyst estimates. Still, with uncertainty about tariffs and trade wars looming, manufacturers should diversify sooner rather than later. They need a Plan B and a Plan C, even if they decide to stay in China, now is the time to develop alternative plans.

Apple shares were up more than 1% to $194.99 in New York on Tuesday. Apple is yet to give new instructions to move production out of China but the company is capable of moving production lines elsewhere if the customers need to fulfill that decision. The company will respond quickly and rely on localized manufacturing in retort to the trade war, just as it foresaw the need to build a base in the U.S. state of Wisconsin two years ago. The U.S. market accounts for one in every four iPhones sold worldwide, so it represents a huge portion of Foxconn’s manufacturing business inside China.

And it’s not just about the simple assembly of finished goods. The trade war has disrupted a complex global supply chain involving many countries beyond just China and the U.S. Many components that go into devices aren’t made in the U.S., despite being designed there. A phone chip designed by Apple may come out of a factory in Taiwan, then be processed for integration into a circuit somewhere else, before being shipped to China for assembly into an iPhone.

Foxconn has also agreed to build a 13,000-worker facility in Wisconsin in exchange for more than $4.5 billion in government incentives. But that project has since come under criticism for low-paying jobs, sudden dismissals and ever-changing goals. On Tuesday, executives reaffirmed that employment goal, saying construction remained on schedule and that it will hire as many as 2,000 Americans by the end of 2020. It will also start making networking and server products for the U.S. market by the end of next year, on top of LCDs starting next year.


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The company also has plants in Brazil, Indonesia, Japan, Mexico, Vietnam, the Czech Republic, the U.S. and Australia among other countries, according to The Wall Street Journal. Exactly how and when Foxconn would shift production to its other plants and how quickly they could move it remains to be seen.