Over the last couple of years, Apple has lived with the threat of having tariffs imposed on iPhone units shipped out of China into the United States. That's because the U.S. imposed tariffs on some products made in China and shipped to the states, including some popular Apple devices like the Apple Watch and the AirPods. The tariffs are basically an import tax that U.S. companies, like Apple, pay for bringing products made in China into the U.S.
Apple seeks to move iPad production out of China and into Vietnam
The tariffs are not paid by the Chinese and in fact, U.S. companies and consumers are responsible for paying them. Using Apple as an example, the company was at one time forced to pay a 15% tax on Apple Watch and AirPods units made in China but shipped into the U.S. Apple could simply pay the taxes and take a hit on its profits or it could raise prices by the amount of the tariffs. The latter has the effect of keeping Apple's profit margins intact and shifting the responsibility to pay the tariffs on to American consumers in the form of higher prices.
Apple wants to move some iPad production to Vietnam
Eventually, when the U.S. and China signed Phase 1 of their trade deal on February 14th of this year, all upcoming tariffs on smartphones (including the iPhone) were suspended. But that hasn't stopped Apple from seeking to move production of some of its devices out of China. Last May, we told you that Apple was reportedly in talks with the Indian government about moving 20% of iPhone production out of China and into India where Apple already produces some iPhone models in order to avoid (quite ironically) an import tax on handsets shipped into India. One person familiar with Apple's plans said, "The move was requested by Apple. It wants to diversify production following the trade war." Foxconn responded by saying, "As a matter of company policy, and for reasons of commercial sensitivity, we do not comment on any aspect of our work for any customer or their products."
Now there is talk about Apple moving production of some of its iPad tablets and MacBooks to Vietnam. Reuters reports today
that Apple has spoken directly with its top contract manufacturer Foxconn about making the switch. This would be done to help Apple diversify production away from China and reduce the impact of the U.S.-China trade war. Firms located in Taiwan such as Foxconn are also concerned about the trade war and are working out ways to move production out of China and into Vietnam, Mexico, and India. Foxconn and other assemblers already produce select iPhone models in India and some AirPods are manufactured in Vietnam. Next year, the third-generation AirPods are expected to be made in Vietnam and released during the first half of the year while the second generation AirPods Pro will also be bred in the country. That production will take place during H2 2021. And Google has converted an old Nokia factory in Vietnam to manufacture some of its new Pixel handsets.
Taipei-based research firm TrendForce notes that all iPads have been made in China to date. Foxconn is believed to be building assembly lines for Apple's iPad tablet and MacBook laptop at a facility in Vietnam's northeastern Bac Giang province. The factory will open during the first half of next year. According to one of Reuter's sources who spoke with the news agency last July, Foxconn is planning to spend up to $1 billion to expand an iPhone assembly plant in India. This move was "strongly requested" by Apple to again, diversify production out of China. Foxconn rival Pegatron is said to be examining the possibility of opening facilities in Mexico for the production of Apple products. Other companies assembling iPads include Taiwan’s Compal Electronics Inc and China’s BYD Electronic International Co Ltd.