Real estate tycoon turned entertainer turned Republican Presidential candidate Donald Trump recently gave a speech saying, among other things, he wants to force Apple to make its products in the U.S. instead of “other countries”.
As Trump put it: “We’re going to get Apple to build their damn computers and things in this country instead of other countries.”
Perhaps this sounds like a not terrible idea to you.
Except that no one country — not even China — makes all of the components of Apple’s leading products, they just assemble them. And the U.S. has neither the factory space nor the trained workforce to handle construction of Apple’s most popular product, the iPhone, in the immediate future.
And if they did, it would add cost to an already expensive device. And all of that would be done for significantly fewer jobs, because American labor is expensive.
That’s probably one big factor why the only major Apple product that is currently made and assembled mostly in the U.S. is the Mac Pro computer, which starts at $2,999.
With apologies to anyone who’s still on board then, Trump’s statement about bringing Apple’s production to the U.S. is probably going nowhere. Every member of Congress who took campaign funds from an international corporation in the previous and current election cycles (and there are many of them) would likely be opposed to something that costs more money. It would harm corporate profits, it would harm free trade, and it would harm us, the consumers.
Intelligent citizens can see the potential complications bubbling up from beneath the surface on this newest declaration from the four-time bankruptcy filer, but we wanted the opinion of someone who professionally handles these kinds of questions to weigh in.
Justin Rose is a Chicago-based Partner at The Boston Consulting Group, which, among other things, helps companies decided on things like whether to move production from a foreign country to a domestic site.
We asked him about the iPhone situation, and he was made it clear how nebulous this issue really is.
While he didn’t specifically address Trump’s comments in his response, Rose admonished the discussion thus far as uninformed. “The whole discussion points to an astonishing lack of understanding of how a global manufacturing supply chain works and where and how value is created,” he explained.
What Rose means is that the iPhone isn’t a $700 device because of the assembly of a hardware device in Asian markets and a supply-demand ratio. It’s a bigger picture of marketing. “The design, marketing and software of the iPhone represent some of the most value added components – all or much of which is Made in the USA – and at much higher paying, higher skilled jobs.”
He went further on that point: “It begs the question of what exactly it means to have an “American-made iPhone.” Does it mean that the assembly happens in the US? That isn’t crazy–Motorola did this recently in Texas, though they have now shuttered the facility,” explains Rose.
“The iPhone is not a device exclusively made for U.S. customers.”
It’s not just the potential price increase that needs to be considered. Motherboard put the potential immediate increase around $50 to the customer, but that doesn’t necessarily mean that Apple maintains revenue by charging an extra $50, or that the company doesn’t take a loss for a few years until new factories are online.
And we should take this opportunity to remind everyone–especially Donald Trump–that the iPhone is not a device exclusively made for U.S. customers.
The Economist did an extensive review of how other countries, with complex import laws, handle their iPhone needs, and it’s a good reminder that these things have homes in countries all around the world, rich and poor.
So yes, a lot of factors go into the decision making process. Rose listed cost, quality, flexibility, labor availability, taxes, and permits as some of major concerns.
And labor has been one of the sharpest fixation points in discussion about the Trump idea. Rose seems to think that the jobs wouldn’t be great for Americans.
“Of course, these are relatively low paying unskilled jobs,” he says, “So it is unclear that it would even be an attractive outcome for American workers. Chinese ‘value add’ has been estimated to be as low as $10-20 per phone [meaning that’s how much it saves to have them assembled there], so bringing this to the USA doesn’t exactly change the game from a trade standpoint.”
And it gets more complicated from there, so stay with us.
Rose reminded us that while there were assembly factories in the crosshairs for this discussion, those factories are putting components together made at other factories. “Does [American made] mean the components are made in the US? In that sense, we would be reshoring from China but rather Korea, Germany, Japan and Taiwan for things like displays, memory chips, processors, etc. Do we mean raw materials? So we need to mine the metals that go into the phone? The question becomes increasingly ridiculous as you drill down into it.”
And even if Apple were willing to uproot that infrastructure under threat of some massive tax Trump has in mind to punish companies for offshoring, it’s not going to happen within a span of time that the former reality TV star would appear to desire.
Rose explained that “Clearly it cannot be done in a flash. Uprooting supply chains is a multi-year and sometimes decade long endeavor. Staffing a factory isn’t the challenge; it is building the network of suppliers, winding down and standing up new contracts, working out the global logistics impact, etc. If there is a Trump administration, the probability of the majority of iPhones being truly ‘made’ in the sense of the components and labor sourced from the USA during his tenure is near zero.”
And even if it was moved before Trump left office, it’s probably not enough to put a dent in unemployment numbers. A Forbes piece explained that bringing low-pay jobs to the US would effectively make Americans poorer.
Rose says it would “surely create jobs—[but] the scale of the job creation would of course depend on the size of the operations brought back.”
That’s because anyone planning a U.S. factory today would likely want to do as much with automation as possible.
“Robotics are increasingly used to drive efficiency and for good reason–in many industries they can reduce the cost structure by 20-30 percent or more,” says Rose. “But even when robotics are embedded in a factory production system you require humans to set up, tend to and maintain the robots. And again, many of these new collaborative jobs are higher paying than the standard assembly or material handling roles which machines take on.”
That equates to fewer employees than you’d see in an Asian factory, by far, but it still makes for some decent salaries for American citizens. Although those jobs may not be worth the huge cost of moving an entire operation to a more expensive facility just to keep the guy from The Apprentice happy.
Rose, either way, is against the idea. “I believe in free trade. We should not try to strong arm companies into coming back to the USA–we should instead focus on building a skilled workforce, making it easy to do business in the USA and streamlining the process of moving production home.”
Here’s hoping Trump, and anyone else who thinks this is a good idea, takes the advice to heart.