Apple prices may increase because of the massive Tariffs we may be imposing on China – but there is an easy solution where there would be ZERO tax, and indeed a tax incentive. Make your products in the United States instead of China. Start building new plants now. Exciting! #MAGA
> Apple’s iPhone is one of the most successful consumer products in history, and one of the most globalized. The iPhone 7’s camera is Japanese, its memory chips South Korean, its power management chip British, its wireless circuits Taiwanese, its user-interface processor Dutch and the radio-frequency transceiver American, according to a study of the value added in smartphones by Jason Dedrick of Syracuse University and Kenneth Kraemer of the University of California at Irvine.
> The factory workers who assemble iPhones in China contribute just 1% of the finished product’s value. Apple’s shareholders and employees, who are predominantly American, capture 42%.
> The economics of the iPhone’s competitors are quite similar: Assembly represents only 1% of the value of Samsung Electronics Co.’s Galaxy S7 and just 4% for Huawei Technologies Co.’s P9, according to Mr. Dedrick and Mr. Kraemer. For all three phones, the most valuable parts of the supply chain occur elsewhere: in the parent company’s design and research; the manufacturing of key components such as microprocessors, memory and communications chips, and cameras; and the intellectual property embedded in key patents. These jobs aren’t as numerous but they pay more and have more spinoff benefits for the rest of the economy in the form of innovation, expertise and profits reinvested in new products and markets.
> This is where the real stakes in the current trade row lie. It’s too late for the U.S. to bring back all of the supply chain. The time to act would have been in the early 1980s, before Western manufacturers began outsourcing the assembly of personal computers and many components to east Asia. Taiwan and South Korea exploited those supplier relationships to acquire know-how for manufacturing increasingly sophisticated products.
> Mr. Trump accuses China of using forced technology transfer, subsidies and nontariff barriers to help its companies supplant foreign competitors at home and abroad. The U.S. has a lot of leverage in this fight given China’s continued dependence on U.S. technology and the presence of companies like Apple to hone its capabilities. But the fight has risks: forcing Apple to shoulder costs its competitors don’t hurts its own dominance, and China has multiple ways to punish American companies, as it did recently by blocking Qualcomm Inc.’s takeover of Dutch chip maker NXP Semiconductors NV on antitrust grounds.
Assembly Workers
Based on 2 hours assembly time, Apple could do assembly in the US and create approximately 60,000 jobs. But at what expense?
Answer: Higher priced phones or lost profits.
Ip writes:
> Hiring that many workers is no picnic: In 2013 Motorola Mobility set out to make its Moto X phone in the U.S. but struggled to find enough American workers according to Willy Shih, an expert in manufacturing at Harvard Business School who is also a director of Flex Inc., the contract manufacturer that Motorola used. In 2014 Motorola decided to outsource production. Apple has encountered similar problems assembling its Mac Pro computer in Texas.
> Assuming Apple could find 60,000 workers, it would have to hire many away from other employers given how low unemployment currently is. The benefit of the wages they earn would be offset by the higher prices other Americans pay for their phones.
> The bigger cost of U.S. assembly, says Mr. Dedrick, would be the inability to quickly add hundreds of thousands of workers when new phones are launched, which is only possible in Asia. Apple can charge premium prices in part because it introduces superior features before its competitors do.
“If they are coming to market late and their products cost more…Apple is going to lose market share,” says Mr. Dedrick.
Brad Setser Chimes In
Greg Ip has a very good column on cell phone manufacturing in the WSJ this week.
100% agree that the location of final assembly doesn’t matter much.
What worries is that the U.S. is doing relatively little of the manufacturing of high-end components. https://t.co/cUvYmzklsa
I am not in favor of targeted subsidies. The US government ought not be picking winners and losers which is precisely what targeted subsidies and tariffs do.
Setser removed that Tweet so perhaps he agrees.
I am in favor of tax policy that encourages all companies to do business in the US.
Could trade in local currencies cause a tipping point in dollar interest rates? If the dollar is under enough stress, could this shift be triggered even if the dollar still dominates trade and reserves? If we are at around 3%, could Russia/China/Iran/Turkey/India nudge it to 4% or higher by avoiding the dollar?
Kinuachdrach
5 years ago
Seb’s preening SJW comment below about the Chinese living in a polluted environment stimulated some thoughts.
There is nothing in biology or physics which says that Chinese have to live in worse conditions than Westerners. Back in the 1400s, China was the most advanced society on Earth. Westerners in Europe were squabbling in poverty, while North Americans and Africans were essentially Stone Age cultures. It took the ancestors of today’s Westerners centuries of innovation, a lot of fossil fuels, and generations of investment to create the modern Western society which can accommodate SJWs.
This leads to the issue of international trade. Here is a thought experiment – What if President Trump were to announce the end to trade wars?
What if the President announced that he was adopting Mish’s proposal that all US tariffs be unilaterally abolished? And at the same time, a “Make it to USA Standards” policy would be implemented (as a contrast to China’s “Make it in China 2025” policy). Imports are tariff-free, but they are allowed only when the importer can demonstrate (1) that the goods were manufactured using relevant environmental standards equivalent to or better than those in the US, and (2) that wages paid to the workers who made the goods were equivalent to or higher than those paid to similar workers in the US.
I do not recall Mish ever addressing the issue of Non-Tariff Barriers to trade. Would this kind of unilateral zero tariff policy plus a non-tariff barrier make anyone happy?
Never seen Republican’s fight to increase worker pay. Trump’s vision is to bring jobs back to America by lowering worker pay to be competitive with outsource countries in Asia. Trump as a clever politician never states that but it is the obvious implication. Lower-middle class workers of Trumps base are led to think “good” jobs means well paying jobs. They will be in for a rude shock should Trump get his way. Imagine Foxconn’s American based factory with suicide prevention nets installed and Trump praising them for saving lives. That will be the MAGA of Trump’s dreams.
lol
5 years ago
Soaring deficits are driving tariff talks,deficits tracking 10 billion a day in red ink (15 billion next year)that’s danger close to default!Sure the fed is printing that away ,but are folks prepared for 20-30 inflation??
pi314
5 years ago
It seems to me that Greg Ip is not against the idea in principle as he wrote “the time to act would have been in the early 1980s.” He is against doing it now for reasons he stated. It took US a decade or two to offshore manufacturing in the 80s and 90s. Given today’s technology and automation, I suggest that we can bring them all back within 5 years. Actually Mish is even more optimistic about technology, e.g. self-driving cars. So perhaps Apple can bring it back in under 5 years. LOL.
Kinuachdrach
5 years ago
We need to think not just about reforming tax policy which has disadvantaged US production, but also about the cost/benefit ratio of high US regulation. We also need to be realistic about time frames — the Political Class has been driving business offshore since before Chrissie was groped; reversing the process is probably going to take 20-30 years.
Further, we need to have a serious look at non-tariff barriers. The EU’s refusal to accept curved bananas is a classic laugh-getter, while Japanese social pressure against driving foreign cars is a much more serious economic issue. And China’s “Make it in China 2025” policy is the 800 lb gorilla in the corner. Zero reciprocal tariffs will not achieve what enthusiasts expect as long as non-tariff barriers are ignored.
No regulation means you breathe in the same sh!t air China breathes in…. literally not being able to see across the street. Or swimming in the same crap water or drinking crap water. What do you mean by less regulation? More pollution?
So, can we then agree to get rid of every other regulation; the ones that do not have to do with air and water pollution?
The Chinese accepts shitty air and water, because for them, the alternative is starvation or close to it. As they grow richer, they’ll want their immediate surroundings cleaned up as well. They’re not genetically predisposed to tolerate pollution better than Americans, after all. At least not tat I’m aware of. Unless their narrower eyes are an adoption for seeing better in smog or something.
Pay attention, please. What I said was — look at the cost/benefit ratio. Clean air and clean water are benefits we all are willing to pay for. But many regulations impose big costs for no appreciable benefits. And there are lots of regulations which conflict with other regulations — businesses have closed down because they physically cannot comply with conflicting regulation.
We need common sense, not emotion.
And the Social Justice Warriors need to look in the mirror. Why do they make poor people in China live in a polluted environment, just so they can buy cheap imports in the West? SJWs are more hypocritical than 19th Century slave owners.
Where do you see SJWs making “poor people” in China suffer? The Chinese know their own situation better than AWNs (American White Nationalists) and have decided the economic benefits outweigh the costs. As Stuki points out they will improve conditions as they get richer. If you look at America’s own development we went through the same.
Brian1
5 years ago
Mish, are you going to ignore Whelan’s retraction?
This? “I made an appalling and inexcusable mistake of judgment in posting the tweet thread in a way that identified Kavanaugh’s Georgetown Prep classmate. I take full responsibility for that mistake, and I deeply apologize for it. I realize that does not undo the mistake.”
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Could trade in local currencies cause a tipping point in dollar interest rates? If the dollar is under enough stress, could this shift be triggered even if the dollar still dominates trade and reserves? If we are at around 3%, could Russia/China/Iran/Turkey/India nudge it to 4% or higher by avoiding the dollar?
Seb’s preening SJW comment below about the Chinese living in a polluted environment stimulated some thoughts.
There is nothing in biology or physics which says that Chinese have to live in worse conditions than Westerners. Back in the 1400s, China was the most advanced society on Earth. Westerners in Europe were squabbling in poverty, while North Americans and Africans were essentially Stone Age cultures. It took the ancestors of today’s Westerners centuries of innovation, a lot of fossil fuels, and generations of investment to create the modern Western society which can accommodate SJWs.
This leads to the issue of international trade. Here is a thought experiment – What if President Trump were to announce the end to trade wars?
What if the President announced that he was adopting Mish’s proposal that all US tariffs be unilaterally abolished? And at the same time, a “Make it to USA Standards” policy would be implemented (as a contrast to China’s “Make it in China 2025” policy). Imports are tariff-free, but they are allowed only when the importer can demonstrate (1) that the goods were manufactured using relevant environmental standards equivalent to or better than those in the US, and (2) that wages paid to the workers who made the goods were equivalent to or higher than those paid to similar workers in the US.
I do not recall Mish ever addressing the issue of Non-Tariff Barriers to trade. Would this kind of unilateral zero tariff policy plus a non-tariff barrier make anyone happy?
Never seen Republican’s fight to increase worker pay. Trump’s vision is to bring jobs back to America by lowering worker pay to be competitive with outsource countries in Asia. Trump as a clever politician never states that but it is the obvious implication. Lower-middle class workers of Trumps base are led to think “good” jobs means well paying jobs. They will be in for a rude shock should Trump get his way. Imagine Foxconn’s American based factory with suicide prevention nets installed and Trump praising them for saving lives. That will be the MAGA of Trump’s dreams.
Soaring deficits are driving tariff talks,deficits tracking 10 billion a day in red ink (15 billion next year)that’s danger close to default!Sure the fed is printing that away ,but are folks prepared for 20-30 inflation??
It seems to me that Greg Ip is not against the idea in principle as he wrote “the time to act would have been in the early 1980s.” He is against doing it now for reasons he stated. It took US a decade or two to offshore manufacturing in the 80s and 90s. Given today’s technology and automation, I suggest that we can bring them all back within 5 years. Actually Mish is even more optimistic about technology, e.g. self-driving cars. So perhaps Apple can bring it back in under 5 years. LOL.
We need to think not just about reforming tax policy which has disadvantaged US production, but also about the cost/benefit ratio of high US regulation. We also need to be realistic about time frames — the Political Class has been driving business offshore since before Chrissie was groped; reversing the process is probably going to take 20-30 years.
Further, we need to have a serious look at non-tariff barriers. The EU’s refusal to accept curved bananas is a classic laugh-getter, while Japanese social pressure against driving foreign cars is a much more serious economic issue. And China’s “Make it in China 2025” policy is the 800 lb gorilla in the corner. Zero reciprocal tariffs will not achieve what enthusiasts expect as long as non-tariff barriers are ignored.
No regulation means you breathe in the same sh!t air China breathes in…. literally not being able to see across the street. Or swimming in the same crap water or drinking crap water. What do you mean by less regulation? More pollution?
So, can we then agree to get rid of every other regulation; the ones that do not have to do with air and water pollution?
The Chinese accepts shitty air and water, because for them, the alternative is starvation or close to it. As they grow richer, they’ll want their immediate surroundings cleaned up as well. They’re not genetically predisposed to tolerate pollution better than Americans, after all. At least not tat I’m aware of. Unless their narrower eyes are an adoption for seeing better in smog or something.
Pay attention, please. What I said was — look at the cost/benefit ratio. Clean air and clean water are benefits we all are willing to pay for. But many regulations impose big costs for no appreciable benefits. And there are lots of regulations which conflict with other regulations — businesses have closed down because they physically cannot comply with conflicting regulation.
We need common sense, not emotion.
And the Social Justice Warriors need to look in the mirror. Why do they make poor people in China live in a polluted environment, just so they can buy cheap imports in the West? SJWs are more hypocritical than 19th Century slave owners.
Where do you see SJWs making “poor people” in China suffer? The Chinese know their own situation better than AWNs (American White Nationalists) and have decided the economic benefits outweigh the costs. As Stuki points out they will improve conditions as they get richer. If you look at America’s own development we went through the same.
Mish, are you going to ignore Whelan’s retraction?
This? “I made an appalling and inexcusable mistake of judgment in posting the tweet thread in a way that identified Kavanaugh’s Georgetown Prep classmate. I take full responsibility for that mistake, and I deeply apologize for it. I realize that does not undo the mistake.”