Last July, trial production of the Apple AirPods started in Vietnam. At the time, the U.S.-China trade war was the biggest thing in the news, and Apple was looking to move 15% to 30% of its production outside of China. Even though Apple designs most of its products in the states, the vast majority are assembled in China. That means that they are subject to a tariff that the U.S. imposes on products manufactured in China and exported to the states.
Trump does a 180-degree reversal on China which could lead to the resumption of the trade war
To refresh your memory, the tariffs do not mean that China pays the U.S. millions of dollars as some people have tweeted. In fact, China has not paid the U.S. one penny because of the tariffs. You see, the tariffs are simply an import tax charged to U.S. companies and consumers on products brought in from China. U.S. firms like Apple can either pay the tax and eat the whole amount lowering their margins and profits, or pay the tax and pass the cost on to consumers in the form of higher prices.
Since both countries signed off on a trade deal in January, it appeared that U.S. companies that manufacture their products in China would eventually be able to put the tariffs in the rear-view mirror. But since U.S. President Donald Trump has done a 180-degree turn on China (praising President Xi in March for China's response to the coronavirus and now attacking the country for hiding aspects of the outbreak), the deal might be canceled; the president recently said, "I’m having a very hard time with China."
Today, the Nikkei Asian Review reported that during this quarter, Apple will produce millions of its popular AirPods wireless Bluetooth earbuds in Vietnam. Citing sources "familiar with the matter," the Review says that 3 to 4 million units or 30% of total classic AirPods production will be made in Vietnam. For now, Apple is not moving the assembly of its premium AirPods Pro to Vietnam; introduced last October, the "Pro" version of the AirPods includes noise cancellation to keep outside noises out and transparency mode when users need to know what is going on around them. The "classic AirPods" are priced at $159.00 with a charging case and $199 with a wireless charging case. The Nikkei's source said, "The mass production of AirPods in Vietnam started as early as in March. The Vietnamese officials even granted special permits for a key Apple AirPods assembler to help the company bring in engineers to the country for smooth production during lockdowns."
U.S tech firms stopped worrying about the tariffs once the coronavirus outbreak started. Now that President Trump is pressing hard to reopen the economy, we could see some U.S. tech companies once again consider moving their supply chains out of China. Another executive of a supply chain company said, "It's still an irreversible trend that big U.S. tech companies will need to gradually seek production bases outside China. Most of the U.S. companies including Apple are looking for non-China production. ... Some prefer Vietnam and some like Thailand, some in India, and some in the Americas, and other Southeast Asian nations."
Some believe that Apple will end up moving most of its production to Vietnam; Samsung produces about half of its phones in the country. Apple would have to make sure that it has access to a supply chain that could provide it with components in the quantity and quality that it needs. India was another possibility especially because Apple already produces some iPhone models in the country. The question surrounding India is whether Apple could build a large enough supply chain in the region for global iPhone production.
The AirPods are Apple's fastest growing device and are also the top selling wireless Bluetooth earbuds with a 50% share of the market. Apple sold about 65 million units last year according to Counterpoint Research; the latter expects 100 million units to be sold this year.