Apple making iPhones in the United States? Do not hold your breath

This article may contain personal views and opinion from the author.
Apple making iPhones in the United States? Do not hold your breath

An exclusive report from Nikkei Asian Review a week ago claimed that Apple was looking at ways it, and its manufacturing partners, Foxconn and Pegatron, might move some iPhone assembly operations to the United States.

This is all conjecture, as none of the companies mentioned in the article responded to comment, but you can count on theories like this being floated thanks to the “Trump effect,” a reference to the recent elections in the United States. These “winds of change” were further carried by a conversation Mr. Trump apparently had with Apple’s CEO, Tim Cook, signaling a desire to have Apple build more of its products in the US. Of course, the president-elect also wants to place a tariff (tax) on foreign-made products of American companies.

I am not trying to enflame anyone’s political feelings, but facts do not care about your feelings, and there are some realities that need to set-in quickly if you think there will be a remigration en masse of American manufacturing over the next four or eight years.

Pegatron assembly workers line up before knocking out a 10-12 hour shift putting together iPhones. Such a scene is not so viable in the US. Photo credit - Bloomberg

Pegatron assembly workers line up before knocking out a 10-12 hour shift putting together iPhones. Such a scene is not so viable in the US. Photo credit - Bloomberg

20th Century and American manufacturing


Anyone that is old enough to consider themselves part of the first two or three post-WWII generations will remember that vast array of products that were “Made in the U.S.A.” I have a few of these relics, most of which still work great. Indeed, Americans were, and still are, good at making stuff.

Once the war was over, and nations began to pick up the pieces, there was only one manufacturing center left, the United States, left virtually untouched by the fires of war that destroyed all of Europe, the Pacific Rim, and significant portions of Asia. In short, the US was the only show in town, and it was the engine that would rebuild the world – everything from basic circuits to zippers – “Made in the U.S.A.”

A world rebuilt


Many people do not realize the scale of what was required to rebuild everything. It took decades, and much of that progress was hampered by emerging geo-political realities, like the Cold War, Korea, Vietnam, ad infinitum.

Despite those variables, the past 75 years are, in broad terms, considered an era of post-war peace. As countries began stabilizing their economies, they emerged as investment opportunities for affordable labor, and new consumer markets. Right now, China and India are the two hot markets, and they alone also represent more than 35% of the world’s population, making them a potent economic hub, and massive consumer base.

I am by no means like Milton from Office Space, but I have had this Acco 30 stapler for at least 20 years. Made of steel, made in the USA, and shipped around the world until less expensive manufacturing venues became available. Try and find a stapler not made in Asia nowadays.

I am by no means like Milton from Office Space, but I have had this Acco 30 stapler for at least 20 years. Made of steel, made in the USA, and shipped around the world until less expensive manufacturing venues became available. Try and find a stapler not made in Asia nowadays.

From building to servicing


The US economy made a pretty dramatic shift since 1980. Manufacturing began to “off-shore” as cheaper opportunities presented themselves. This impacted a lot of skilled labor, but it was more than offset by the larger economic growth from 1983 through 1999.

That was when the “service” economy evolved, and when the internet began to open up to the world (beyond the dial-up days of TELENET, Prodigy, or Compuserve) and create unprecedented growth in international commerce.

All of that developed into an economy which is now 80% comprised of “services.” Many heavy and technological industrial elements remain, but where cheaper labor was available, China and India easily grew to take on manufacturing at a scale that is physically not possible anywhere else in the world due to a simple lack of people.

The previous tech migration


The United States has seen this type of industrial migration before. As nations rebuilt and economies grew, competition in all sectors of commerce began to heat up. Through much of 1970s and 1980s, Americans begrudgingly accepted the increasing supply of electronics (and cars), made in Japan.

Sony became a powerhouse with the Walkman, and would soon do the same with televisions. Stereo systems would reshape “high fidelity” sound, thanks to Sony, Onkyo, Aiwa, et al. Within a veritable blink of an eye, “Made in Japan,” became not only the norm, but a sign of quality for many great products, from electronics to automobiles.

Mobile phones at the time? Those bricks, like the Motorola DynaTAC of the 1980s, were initially made in the good old USA (accessories elsewhere).

The first cell phone, the Motorola DynaTAC

The first cell phone, the Motorola DynaTAC

Simple math


The rhetoric to bring manufacturing back to the United States brings distant memories of the salad days of America’s dominance in the world economy. Make no mistake, the US is still the big boy on the block, but it must contend with “first world” problems – higher wage and benefit expectations, competent and sometimes overbearing regulations for labor, safety, environmental considerations, and navigating through an ever-more-complicated tax system that punishes success in ways not imagined a century ago.

Simply put, a skilled, or unskilled, worker in the US costs many times more than their counterparts in Asia. Moreover, everything else is more expensive too. That is a hard reality when dealing with a purchasing power of $55,000 per capita in the US, versus $14,000 in China, or only $6,200 in India.

Do not buy the political rhetoric


None of these realities are helped by some of the bloviating of president-elect Trump. His promises to place tariffs on goods made overseas for American-based companies will have limited impact, particularly in the manufacture of electronics. Of course, the president does not have the power to unilaterally invoke a tariff, that is done by Congress, and they have not been very productive lately.

Mr. Trump is also thinking about incentives to make Apple, and other companies, bring more operations to the US. A relaxation of the corporate income tax rate is likely part of that picture, but that does little to abate actual costs of doing business in the US, especially when it comes to manufacturing. To even think of operations on the scale of Foxconn or Pegatron, there would have to be subsidies on a scale that would rival the GDPs of small nations, and that would be just for Apple, never mind other enterprises that contract with manufacturers overseas.

A 35% ad valorem tariff on something like the iPhone will not increase the retail price from say, $650 to $875. Rather, it is a levy applied against the cost of the product, not the sale price. In the case of an iPhone, which costs Apple roughly $225 per-unit to make, that would raise the unit-cost to about $300. Some would argue that still leaves Apple and its retail partners plenty of room to make money with, and indeed, these businesses are more than capable enough to manage the narrower economic path a tariff would impose. However, there is another factor that must be considered, China.

[img left [[266860]]:"The fine print of a tariff? It raises prices across the board, whether an iPhone is made in the US or not. Image credit - Assignment Point" /]China


Like a game of chess, there are moves and countermoves in the world of trade. Though, for purposes of the current global climate, it probably feels a bit more like backgammon, each player has a strategy, but the world is tossing the dice, and no one knows what moves they may be forced to make. Such as it is (or would be) with China.

What many people are not taking into account is that China will not sit sublimely by while its largest economic partner begins invoking trade barriers on products that are the fruits of its manufacturing engine. What an engine it is too, in less time than it took for Americans to accept Japanese-made goods, we have seen tremendous strides in build quality of many products made in China, not the least of which is, the iPhone. We have also seen amazing levels of quality reaching far less expensive products from ZTE, Huawei, and BBK (parent of OnePlus, Oppo, and Vivo).

Some may think that China would just go tit-for-tat, but I would expect moves that are more subtle, if not more manipulative. China, at its whim, could simply readjust the value of its currency. Or, perhaps just as likely, it would subsidize manufacturing costs so that companies would not have to bear as high a cost for goods made, thus canceling the ad valorem tariff premium. Perhaps an even more “in your face” move by China would be to re-peg its currency to the dollar the way it used to.

In any instance, the world’s two largest economies would find themselves being checked at every move. While that would make for some interesting drama, and for all the warts and debt the United States has accumulated, China has weathered the economic turmoil from the past several years be literally building cities and leaving them empty. That is hard-asset debt (estimated in multiple trillions of dollars) that ostensibly stays off the books. Nope, China is not going to simply give up its manufacturing base that powers over 30% of its economy. The same can be said for any emerging market with growing productivity.

Where arguments for "free market adaptation" fail, is the assumption that China is truly a free market. It is not. It is an open (well, open-ish), centrally planned economy that grows based on mandate, not market conditions.

Think long, and change how people see the big picture


The point is not about the United States not manufacturing stuff anymore. It is about leading the way of manufacturing. Solid state silicon-based technology is a big boom, with room for high margins and making money. However, it is a commodity. Smartphones are inescapably in that downward price spiral as components get perpetually cheaper.

No, the key is for the United States to continuously re-invent how people grow and participate in this world. From Ford inventing the assembly line, to the Grigg brothers inventing tater-tots, to BBN developing the ARPANET, these creations changed how people bought cars, ate potatoes, or conducted communications and commerce.

The scale of production involved in making something like the iPhone is not necessarily beyond the ability of the current US market, but I would argue it is beyond the threshold of a generation raised in "safe spaces" and "participation trophies." The effort exerted by Apple's contract manufacturers to build tens-of-millions of devices each quarter, strains all western ideals of "good jobs," as evidenced by the exhaustion experienced by workers in China.

Making phones, or staplers, or textiles is not the future. The American market must be driven to create, not simply manufacture. That is something worth holding your breath for.

Apple making iPhones in the United States? Do not hold your breath
PhoneArena is on Instagram. Follow us to stay updated with fresh news and flashy media from the world of mobile!

FEATURED VIDEO

36 Comments

1. BobLawblaw unregistered

Trump said what people wanted to hear. And it worked for him. I honestly don't think much will change. Same goes for brexit. I'm just worried about the implications of both here in Ireland..

2. NarutoKage14

Posts: 1312; Member since: Aug 31, 2016

All of his self branded products are made outside of the US. Most aren't even made in China because he considers manufacturing costs there to be too high.

3. Awalker

Posts: 1967; Member since: Aug 15, 2013

He may actually believe in that stuff but Donald is going to find out that it's much to say those things than to actually implement them.

16. QWIKSTRIKE

Posts: 1458; Member since: Mar 09, 2010

He does not believe what he said...... If he did he would lead by example with his over seas companies and bring those jobs back first

4. Ticklemyfancy

Posts: 214; Member since: Oct 09, 2016

*Whispers China china china

5. XperiaFanZone

Posts: 2277; Member since: Sep 21, 2012

What if it was made in Germany instead? Or qatar/uae which has a much higher ppi than the US's?

25. Bernoulli

Posts: 4359; Member since: Sep 01, 2012

it won't happen, manufacturing start-ups are enormously high, even the likes of BMW and Mercedes-Benz are escaping to mexico for manufacturing models that they will ship over to USA. Also, Luxembourg and the Vatican have a higher per capita than the rest of the world.

6. kevin91202

Posts: 642; Member since: Jun 08, 2014

USA=Land of the Free and the Home of the Hypocrites. Americans love to bash China but have no problems buying, using, and promoting China's Communist-made products. Americans say if you support terrorism, that makes you a terrorist. So, by that logic, by purchasing Chinese-made products and services, that makes every American a Communist as well? Hmmmmm.....

7. kevin91202

Posts: 642; Member since: Jun 08, 2014

Some of Trump-branded clothing are made in China. Go figure...

15. willard12 unregistered

The last 3 buildings he built, including the one he just opened in DC, used steel from China. Go figure...

8. Settings

Posts: 2943; Member since: Jul 02, 2014

Nah, dont care much at all. I'm no fan of Apples so I could care less.

9. lyndon420

Posts: 6590; Member since: Jul 11, 2012

Too bad an honest day's work is more / less valuable depending on where you live.

10. USAUSAUSA unregistered

Trump is so idiot he will never make iPhone America again. He will never win the primary because he's idiot He will never win the nominee because he's idiot He will never beat Jeb Bush because he's idiot He will never beat Clinton because he's idiot He will never win election because he's idiot He will never be President because he's idiot I like how people judge someone without giving him a chance to perform and pretend themselves like expert. If Trump is idiot, how to describe Bush and Clinton who defeated by Trump in new word? We have yet to seen the outcome, don't judge too early otherwise phonearena will be end up biased, crooked, and dishonest just like the rest of MSM

11. USAUSAUSA unregistered

Added to that, people who keep saying huawei will never surpassed Apple and Samsung will soon taste their own medicine. I'm no fans of huawei and probably never will. But huawei gaining momentum for reason, despite his device getting more overpriced people still buying it. It simply means huawei is trusted by consumer! You don't trust huawei because you don't own one, but that's fine. However, if you yourself don't give huawei a chance, you have no right to criticize the device. How can you judge when you have no experience on it?

12. kiko007

Posts: 7493; Member since: Feb 17, 2016

The f**k are you talking about????

14. USAUSAUSA unregistered

I'm just giving you a warning sign, for not underestimate the enemy, plain and simple. Don't judge enemy too soon, when you yourself refuse to keep enemy closer. That's stubborn

13. NarutoKage14

Posts: 1312; Member since: Aug 31, 2016

You wasted several minutes of my time. I'm going to charge you for it. $5 please.

23. aegislash

Posts: 1457; Member since: Jan 27, 2015

Huawei gained momentum in their homeland, but they reported recently that they're struggling to gain any ground in the US market since the start of selling their phones here.

20. piyath

Posts: 2445; Member since: Mar 23, 2012

SO many people laughed at him SOOOOO MANY, said he will not be the president, he is a joke, but now are they laughing so much?? Poor people have spoken. MSM + brainwashed college students + moronic millennials who eat our culture did lose. Poor people won. America (blue collar hard worker) will have another chance. America desperately needed another chance. China is a big boy too. It's economy is as big as USA's. China is vastly over populated and that's why it's uder developed yet. But it's on the right path to the success. How china does conquer the whole world by phones, cars, home electronics, television, by EVERY F'ing THING?? How? Most of the people who write these articles don't know what is the internal situation in America. You better go and talk with 90% of the US citizens and you'll understand how bad the American society become and how bad the poverty is there. Once USA was a great country and US leaders must remind that times again first. Anything is possible with the right leadership. Let's see what Mr.Trump is going to do.

30. tedkord

Posts: 17184; Member since: Jun 17, 2009

We're still laughing at him, and now at his followers. Not even in office yet, and already throwing all his promises out the door - just as I said he would all along, because I know Trump. He's never been a conservative Republican like he pretended in this election. He's always been a Clintonian Democrat, his entire life. Donald Trump isn't for the little guy. The road is littered with little guys he's crushed or screwed because they were in his way. Donald Trump is for Donald Trump, period. The little guy, the country, mean nothing to this narcissist.

39. Jason78

Posts: 281; Member since: Apr 10, 2013

Do you really think a billionaire that built his first building with illegal Polish workers to break a union strike, makes all of his products outside of the USA, and imports people on temporary work visas to staff his properties cares one bit about the American poor? He told people what they wanted to hear, made promises he never intended to keep, and will go about his business. Job 1 will be to give billionaires like himself a huge tax cut. Job 2 will be to leverage the position of President to make as much money for himself as possible.

17. piyath

Posts: 2445; Member since: Mar 23, 2012

USA people need any king of job at the moment. You higher wage gap argument is so wrong. There are black people who doesn't make enough buck to eat 3 times a day. There are jobless millennials who lives in roads. And if the lowing of tax for the normal person + a relatively descent job will do the thing for so many helpless people in US. You said USA is the big boy in world economy. Yes it is. But that doesn't mean money is in every person's pockets. No. I recently read an research article and what it said basically was the wealth of 0.1%of rich people is equal to the total wealth of the lower 90% population of the entire united states. What does that means? It means although US economy moves money in large quantities doesn't mean the normal citizen is rich. US economy is handled or being handled in the past by that elite class of 0.1% of wealthy people + politicians according to their agenda to maintain that position for ever. That's why people made the a decision this time to make a change. US gov under Trump will/can can follow the Nationalism concept in the coming 4 years and do the following. Raise Import tax, Drain any trade deficits with China or any other country, Negotiate new profitable (not charitable) trade deals, Lower corporate tax for native companies and bring back manufacturing, lower every possible tax type including sales tax for US citizens, stop the wastage by within via strict immigration policies and better vetting processes, stop drugs coming from south America by borer control, stop wars all over the world and use that money intelligently and create jobs for local people who then can earn a living. If all the above adjustments are made, it is entirely possible to do what Trump is saying. People need a change and that's obvious. These kind of negative articles won't help that even a bit. Current money flow in USA isn't helping the 90% people of the country and the country is bleeding. USA must manufacture things again if they want to stand up again.

18. piyath

Posts: 2445; Member since: Mar 23, 2012

https://www.washingtonpost.com/news/wonk/wp/2015/11/19/bernie-sanders-is-right-the-top-0-1-have-as-much-as-the-bottom-90/ Money doesn't roam around normal citizens. Money is in rich people's pockets. That's why people made the decision this time to have a radical change. People need money. more money because their expenses are high. Gov cannot lower any sales or medical expenses because it has no enough money to do that. If millions of jobless people start working in USA, they'll be paid + they can bring foreign money in to USA thus all the above is possible. Salaries doesn't need to be that high compared to China labor if the sales taxes and other taxes are reduced in USA. Along with that when people start earning, they will have money do dwell. All these things should come to an equilibrium and Mr. Trump's dream is reachable. If the right leadership, right vision and will power is there US president can do anything.

21. VZWuser76

Posts: 4974; Member since: Mar 04, 2010

Curious then that his tax plan will benefit the top 1% the most isn't it? According to projections, some of them will be paying around $1 million less than they currently are. Whereas the poorest of our society will see their personal exemptions go away and their tax rates jump from 10% to 12%. And just today they're now saying that single parent families and two parent families with 4 children or more will also see tax hikes. So please, stop pretending Trump is a force for the poor. He said during the debates that Hillary was responsible for the rich getting richer because she didn't try to repeal the loopholes that allowed it to happen. If this plan goes through, not only will Trump not close any loopholes, he will in effect turn said loopholes into craters the size of Texas. Did you not even read the article? Not only will Apple bringing iPhone production to the US not happen, but it may start of a trade war with China, who also happens to be one our largest owners of debt. And it will actually be cheaper for these companies to pay the tariffs rather than bring production here. And in case you didn't realize, the reason the top 1% have as much as the rest of the world is because these politicians keep trying to make us believe that if we keep giving tax breaks to the wealthiest in the hopes that they'll put the money they saved towards creating jobs. That's the result of so called trickle down economics, which is what Trump is trying again, same as Reagan and Bush did.

24. FlySheikh

Posts: 443; Member since: Oct 02, 2015

+100000000!

28. piyath

Posts: 2445; Member since: Mar 23, 2012

I don't get your problem dude.. There will be sales taxes for normal people and corporate taxes on top of all the other taxes normal citizens have, for rich business people. Most importantly many many businesses pay taxes for foreign governments including Apple (do you know about the 15 Billion fine European union has fines for Apple for alleged tax evasions in Scotland?). That is because they cannot run a business under 35% tax rate. Do you apprehend that fact? When they fly back to USA with their off shore money they will pay taxes here in US for every dollar they earn, as they will run their entire businesses in US. And they will pay the American worker in USA, not the Chinese worker in China. WTF are you talking about man??

29. piyath

Posts: 2445; Member since: Mar 23, 2012

This business model won't be as profitable as their current method for US companies. But I think that's the right thing to do. They have to give back to where they started. They have to remember their roots.

31. tedkord

Posts: 17184; Member since: Jun 17, 2009

You're seriously misreading his tax plan if you believe it will benefit the poor and punish the rich. The poor are actually getting an effective tax raise, the middle class are getting less than 1% savings, and the rich will average about 13% savings, or $275,000 tax savings per year. It's all in black and white. Taking away personal exemptions will hurt the poor.

33. VZWuser76

Posts: 4974; Member since: Mar 04, 2010

People don't pay corporate taxes, corporations do. Rich people still pay individual taxes just like anyone else, and they're the ones who are getting a huge tax cut. That's apparently what you don't get. That's how they got rich. Trump said it himself, that there were plenty of loopholes for rich people, and now he will widen them for the rich while at the same time squeeze the poorest. Personal exemptions being eliminated means people will he paying on more of what they made than they currently do. And for the lowest tax bracket, he has raised it from 10% to 12%, so they'll he paying on more AND at a higher rate. In contrast the wealthiest, his plan eliminates the top two tiers, meaning anyone making over $415,000 a year will see their tax bill lowered between 2% to 6.6%. The middle class, who he wanted to supposedly bolster will also lose their personal exemptions and be taxed roughly the same percentage, but since the exemptions are gone, they'll he paying on more of their money. And let's not forget he also lowering tax rates on corporate gains, which will not effect the poor or much of the middle class, but the upper middle class and the wealthy. I mean seriously, have you even read up on his plans? Or did you not understand them? What benefit is their to bring their money back to the US? They've been running their corporations with their money held overseas for so long, why would they willingly bring it back so it can be taxed? For all of his talk of lowering corporate taxes and trying to bring manufacturer back to the US, it's not going to work. If Apple were to do so, their product will cost almost 1/3 to 1/2 more than they do now if they plan on keeping the same profit margin. So it's either raise prices or take a hit on profits, neither in Apple's best interests. Trump is living in fantasy land. And if you're thinking he a businessman and I'm not, read up on the subject, everyone is saying the same thing. I would guess that all Cook is doing is paying lip service when talking about moving manufacturing back here.

40. Jason78

Posts: 281; Member since: Apr 10, 2013

Wow, someone has really drunk the Kool-Aid!

Latest Stories

This copy is for your personal, non-commercial use only. You can order presentation-ready copies for distribution to your colleagues, clients or customers at https://www.parsintl.com/phonearena or use the Reprints & Permissions tool that appears at the bottom of each web page. Visit https://www.parsintl.com/ for samples and additional information.