iPhone City

It is not hard to understand how China, with its massive, young, and tech savvy population, buys more iPhones and smartphones than any other nation on earth. The Chinese also make almost all of them. There’s a clichéd animosity toward the “Made in China” phenomenon here in the states, for many reasons: The loss of American jobs to overseas labor (an inevitable result of globalization), the large trade imbalance between the U.S. and Asia, and the notion that large companies like Apple subject their Chinese workers to harsh and inhumane working conditions. Donald Trump made headlines with another characteristic threat towards Apple’s Tim Cook, not-so-subtly suggesting that Apple should start making their products in the states (or else).

However, when one looks at the dynamics of comparative advantage and industry in China, this is truly a ridiculous concept for Donald to worry himself about. It’s also borderline insane to expect Apple to simply move their entire production line to the states based on the threat of a tariff. The perception of this Trump ideology is that Apple is screwing over the American worker in search of more cash. Indeed, it is far cheaper to produce iPhones in China ($65 cheaper to be exact) than in the U.S. It’s also extremely important to consider Apple’s supply chain for the iPhone. Almost every single part is produced in Asia, with the exception of most semiconductors, which are produced in Europe. If one wanted the iPhone to be “made in America,” not only would Apple have to open a factory here, but so would every single one of its suppliers.

It’s also important to recognize that the quality of Chinese factories and production lines are far better than any in the United States. We “can’t compete” with the supply chains that are in place there. Executives say that there are literally not enough technically skilled Americans who would want to do the job.

One of the main criticisms lobbed against Apple is their hiring practices overseas and working conditions in the factories. Very low pay and long hours are the main complaints, and Apple has spent ample resources to try and shake this perception with little success. However, there are many positives when an Apple plant comes to town. Not only does a factory hire tens of thousands of workers (an absolutely massive injection into the local economy, low wages aside), but it improves the relations between locals and their governments. Officials actively seek to make their town the home of the next hardware factory, and offer millions of dollars in money upfront to build them. In Zhengzhou, affectionately known as “iPhone City,” they produce 500,000 iPhones every single day. The local government is reported to give significant tax breaks and subsidies to Foxconn, one of Apple’s manufacturers, to keep the jobs there.

I don’t think Apple wants to go anywhere soon. It seems that Chinese workers, the Chinese government, and the American consumer, all agree.

 

References

Barboza, David. “How China Built ‘Iphone City’ With Billions In Perks For Apple’S Partner”. Nytimes.com. N.p., 2017. Web. 1 Feb. 2017.

Bradsher, Charles. “Apple, America And A Squeezed Middle Class”. Nytimes.com. N.p., 2017. Web. 1 Feb. 2017.

“Donald Trump Says He’ll Stop Apple From Making Iphones In China”. Fortune.com. N.p., 2017. Web. 1 Feb. 2017.

Oster, Shai. “Behind The Scenes At Apple’s Controversial China Iphone Factory”. chicagotribune.com. N.p., 2017. Web. 1 Feb. 2017.

 

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10 Responses to iPhone City

  1. gristt18 says:

    This is a good topic: I think you’re right to say that animosity toward products “made in China” was a big campaign point for Trump. Bringing jobs is always a part of campaigns, though, while actualizing that goal is much more difficult. Do you think Trump is likely to impose huge tariffs on iPhones if Apple doesn’t bring the jobs back to the states? He has threatened to do it to companies that make more expensive products, like Ford. If he did end up imposing tariffs, would Apple be likely to move most, or even any, of their operations to the States?

    • Alden Schade says:

      I think the imposition of high tariffs on iPhones is unlikely, simply because while it would hurt Apple, it ultimately hurts the American consumer. And while consumers may have many different choices for different makes and models of cars, the iPhone is a far more ubiquitous product with less competition. These factors make attempted “punishment” of Apple through tariffs unlikely.

  2. march zheng says:

    It is crazy to think that the majority of people could not possibly fathom the benefits of outsourcing human labor to China, and how that makes the costs of technology we enjoy everyday relatively affordable. China does have a very high supply chain, but as human capital increases so will the labor costs, so I wonder what effects that would have on Chinese manufacturing in the long term. Honestly, I feel bad for companies like Apple sometimes because they know exactly what they are doing and I think Trump does too. But like all societies in the past, you have to appeal to the masses and their understanding of things.

  3. curtor18 says:

    This is definitely an interesting and pressing topic to examine. If Trump did enforce a tariff on Apple it would be interesting to see how much of a hinderance it would be towards the sale of their products, as they are already much more expensive than many of their competitors. If Apple released a new model they could easily jack the price up to account for the tariff under the guise of new and improved technology. That being said, if a tariff hurt sales and profit margins severely, moving production into the states would require an enormous amount of capital investment. This would be a huge injection into the domestic economy, but also an unfortunate burden for Apple to carry. As pointed out in the post, there aren’t enough skilled American workers that would want to do the assembly line jobs, this could spell disaster for the cost of Apple devices and Apple’s stability in the future.

  4. feldsteinp18 says:

    I think that this is an interesting point but like Mason mentioned, I believe this will be a case of all talk with no action to show for it. It makes no sense for all parties involved to move Apple production to the United States, it would be incredibly expensive, would take a long time and would not be all that advantageous. An interesting topic in regards to Apple and Donald Trump is the issue of expatriated profits and whether or not those will have to be domesticated in the future.

  5. choia18 says:

    Apple and many companies who based manufacturing operations in China face a lot of criticism for the points mentioned above. Globalization is taking jobs away from America and cheap labor in China makes cheap products. We can continue on and on making complaints about Chinese manufacturing but I fear a bigger issue will soon be at play: automation. Related to this article, a company called Changying Precision Technology Company (the also make phones) recently replaced 90% of their workers with robots at one of their factories. The results were an increase in production of 162.5% with a product defect rate decreasing from 25% to less than 5%. Foxconn also recently announced that they plan to replace 30% of their workers in factories with robots by 2020. Zhengzhou is what Mason is referring to when he mentions iPhone City and Foxconn’s factory there has already begun transitioning into automation. If Apple so chooses to take this route, I highly doubt a tariff would affect Apple’s decision to make iPhones in America again.

    http://www.theverge.com/2016/12/30/14128870/foxconn-robots-automation-apple-iphone-china-manufacturing

    http://www.techrepublic.com/article/chinese-factory-replaces-90-of-humans-with-robots-production-soars/

    • tylerc18 says:

      The 162.5% increase in Changying phone production is astounding. If Foxconn follows through with their target of a 30% reduction in human labor, it could mean larger profits for Apple with the risk of backlash from the Chinese labor force. Sam mentioned in his post that Xi Jinping has a target of his own: doubling wages for Chinese workers by the year 2020. If both Foxconn and Xi’s targets are achieved, Trump may have a valid point in wanting Apple to be produced exclusively in America. The problem still remains in Apple’s supply chain, however, as Matthew points out. It will be interesting to see how these events unfold in the coming years.

  6. bonesc18 says:

    This is a really interesting post and a phenomenon that extends far beyond the iphone. I’d be curious to see what Walmart would look like if President Trump’s theoretical tariff went through. However, if the status quo remains, and China continues to produce the things we rely on every day, we must accept two things. The first being that American manufacturing as we once knew it will never compete with a much bigger and unregulated Chinese force. The second being, that the rules of the process will remain beyond our control. China can continue to subject its workers to inhumane conditions, manipulate economic statistics, and overall, play unfairly. We cannot insist China change these practices, while relying on their products.

  7. masonw17 says:

    I think it is important to note that this issue is one of political will as well as economic advantage. While it is clearly efficient for iPhone production to occur in countries with established consumer goods manufacturing sectors and an abundance of low-wage medium-skill workers, the US’s trade balance with China has important political ramifications. In particular, I think that many politicians and lobbyists are quick to use rhetoric which emphasizes China’s position as a competitor to the United States’ “superpower” status because competition is a powerful motivator for political action favorable to American business. In that sense, building trade walls with China can be thought of as analogous to Britain’s strategy of flooding the Chinese market with addictive opium in the 19th century: both then and now, Western nations are concerned about the political effects of a China-dominated export market.

  8. Matthew Kaminer says:

    (Reposted from Feb 3) While I agree that a “defensive” tariff on Apple production would not be wise for the United States, I do not believe this would exactly be the first tax of this nature between China and the U.S. initiated by the administration in recent memory. Not long after President Obama took office, he slapped a steep 35 percent import tax on Chinese tires, which caused China to impose retaliatory taxes on chicken and car exports. I think it’s safe to say neither China nor the U.S. came out the other end successfully, but as has been mentioned in previous comments, the pervasiveness of Apple and the omnipresence of the iPhone in the U.S. makes a 45 percent tax (which is what President Trump has toyed with) not only a major risk, but a likely dumpster fire.

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