Apple and the “Made in China” Controversy
March 29th, 2018I’m sure many of you know the facts, or at least some of them, about how Apple designs and builds its gear. The conventional impression is that iPhones, iPads, Macs, Apple Watches, Apple TV, HomePod and all the rest are made in China or some other Asian country, and those who crave “Made in the U.S.A.” labels on the stuff they buy are apt to be disappointed.
But to a large manufacturer, there is not just one country, but one planet, and thus the matter of designing and building a product is far more complicated than many politicians portray to score points with their supporters. So when someone says that there should be huge tariffs on gear made overseas they may be missing the point.
Take your family car, SUV or truck. The vehicle may be assembled in America, but the engine may come from Mexico or Canada. Consider the American version of the VW Passat, a family mid-sized car assembled in Chattanooga, TN. The engine is made in Puebla, Mexico. So is it an American car, or a Mexican car, or is it still a German car, because the company’s main office is located in that country?
You may not realize this, but the cars with the most American-made parts include the Honda Accord and the Toyota Camry. Some American cars are assembled in Canada and Mexico, or maybe even China.
The long and short is that complicated products may have complicated production schemes, with different parts being sourced from some countries, and final assembly being performed in other countries. Things may be simple with pillows made in Minnesota, but I suspect the materials are sourced from different places, and not all of them are located in the U.S.A.
So what about Apple, the presumed classic example of outsourcing? Is that all done by a greedy company seeking maximum profits at all costs, or is it just an example of a multinational corporation trying to set up an efficient supply chain and production capability? Or some combination thereof?
Why can’t they build iPhones in this country, and iPads, and MacBooks and all the rest?
It’s not uncommon to blame Apple, but in a recent interview for Recode and MSNBC, CEO Tim Cook pointed out that “We are building things in the United States,” that “It’s not true that iPhone isn’t built in the United States.”
What he means is that the final assembly may occur in China, but the Gorilla Glass on all iPhones and iPads are made by Corning in Kentucky. The iPhone X’s FaceID module is made in Texas, as is the Mac Pro. Many of the Intel chips used on Macs are made at various plants in America, including one not terribly far from where I’m sitting right now.
During the interview, Cook boasted of the $350 billion investment Apple is making in the U.S., pointing out that “We love this country. We’re patriots. This is our country. Want to create as many jobs in the U.S. as we can.”
Does that mean that no iPhone or any of Apple’s other mobile gear will ever be completely manufactured in the U.S.A.? It’s a question that’s still asked, and I suspect it’s going to be difficult in the near term. Apple, its suppliers and contract manufacturers, have invested tens or hundreds of billions of dollars setting up elaborate supply chains and production facilities in Asia. Parts are sourced in different parts of the world and shipped there for final assembly. To recreate a similar assembly apparatus in this country would also cost hundreds of billions of dollars and involve years of fine-tuning. It couldn’t happen overnight, even if there were tariffs to force the process.
If tariffs were applied to stuff shipped to this country, the price you pay for Apple gear — and for gear from any other country given similar punishment — would increase. It wouldn’t guarantee more American jobs, since fewer people would buy the higher priced product, and thus some of the people who design, sell and service them might lose their jobs.
It doesn’t mean a future iPhone won’t be all American. Salaries continue to increase for the workers at these Asian factories. At some point in time, the costs of shipping parts to the factory and shipping completed products from the factory may, along with higher salaries, no longer be cost effective. Production may shift to countries with even lower wages and, eventually, to where the products are actually sold.
This will be more a matter of market forces, as it should be, rather than being forced to act because of the prevailing political winds in any specific country.
But Apple has always received the brunt of criticism about its assembly practices. When unsafe working conditions are attacked, it’s always all about Apple, forgetting that most major tech companies also assemble their gear in Asia. It’s also true that those other companies rarely tout efforts to improve working conditions. Just Apple.
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That’s half of the story. The other half is that as soon as an American electronics firm permits some of its sophisticated stuff to be made in China, it’s going to have that stuff torn apart, thoroughly scrutinized and copied by some Chinese firm (very likely a subsidiary of the People’s Liberation army). If there’s one thing that concerns the Chinese government less than individual human rights, it’s Western patent and copyright laws. No American firm should allow its stuff to be manufactured by Chinese subsidiaries unless it’s willing to give away its trade secrets for free.