Consider Tump’s absurd view of the world.
Bank of America View
A Bank of America analysts says you will have to [pay 20% more for an iPhone](iPhone prices would rise up to 20%) and other goods to satisfy Trump’s ridiculous view of “winning”.
IPhone prices will rise significantly if Apple assembles the smartphone domestically, according to Bank of America Merrill Lynch.
>”‘Back to US’ manufacturing seems to be back on the agenda for President Trump … We believe Apple could ask Hon Hai and Pegatron to shift a small portion of their iPhone manufacturing to the US in response to President Trump’s request,” analyst Wamsi Mohan said in a note to clients entitled “Handicapping the China trade risk and potential for ramping US manufacturing” Monday. “The conclusion was for the iPhone (not currently impacted by Tariffs) moving production (100% of final assembly) to the U.S. would need 20% price increases to offset the incremental labor costs.”
>Mohan said under the “most likely” scenario in which Apple moves 10 percent of its iPhone assembly to the U.S., the average selling price of the iPhone would rise by 8 percent. He also said if Apple shifts 50 percent or 100 percent of iPhone assembly domestically, it would increase iPhone prices by 14 percent and 20 percent respectively.
Price Double?
The Financial Review says Donald Trump’s ‘Made in the USA’ iPhone would cost $US 2000.
>Would you willingly spend $US 2000 to buy an iPhone that today costs a grand?
>That’s how much veteran analyst Tim Bajarin tells me it would cost Apple to retail if it made iPhones in the United States.
>Think about the parts dilemma for a second. Remember that Apple makes more than 200 million iPhones yearly and has to come up with OLED screens, camera sensors, solid state storage drives and the like to put into every one of them.
>These are all made-in-Asia products.The reason the launch of the iPhone X was delayed in 2017 to November from September was the scarcity of the OLED screens. Apple couldn’t get enough of them for the phone, and it took time to get factories up to speed.
>Apple’s not alone. Cameras have been made in Asia for decades, Samsung creates its Galaxy phones in South Korea, Vietnam and India, Amazon gets Echo speakers made in China and Google gets the Pixel phone made in South Korea.
>I think the American consumer would have a tough time forking over $US 2000 for an iPhone, but what are they going to go — all suddenly switch to using Samsung phones? Granted, Samsung sells more phones yearly, mostly lower-priced models in developing countries, but the iPhone is the best-selling consumer device, hands down.
Not Just Apple
Apple would be one of the companies hardest hit, but the same setup applies across the board.
Forcing people to pay ten to 20 percent more for goods, or 100% as one analysts suggested to create a few jobs when unemployment is under four percent is not terribly smart, to say the least.
Mike “Mish” Shedlock
It would be highly stupid for Apple to make such radical disruptive expensive changes on the whim of Trump’s politics of the moment. China will devalue further and lessen the impact, and then there is a tsunami of resistance coming from corporate interests that will express themselves politically. This is not a done deal with the rest of the Repug Party by any stretch. The company IMO will wisely wait for it all to shake out unless Trump or the Chinese cut them a special deal.
I’m willing to up cost 20% for a usa product but I know that’s a complete lie. American business investors don’t do anything on 20% you would go broke. I would bet a doubling of the price would be more correct or even more. Apple uses third party slave labor wages unlike anything we can understand.
Offshoring of jobs is enabled by the increasing debt levels.
Without increasing debt levels in USA moving well paying jobs from USA and making them slave wage jobs in China would be dropping demand for products in USA and therefore offshoring of jobs at scale would NOT be possible.
Only continually increasing debts levels in USA have enabled companies to offshore production thereby lowering their wage bill and increasing their profit margin and importing millions of low wage workers (both legal like H1B and illegal) thereby lowering their wage bill and increasing their profit margin and executive compensation and STILL the demand has kept up because it has been demand enabled by increasing debt levels.
Debt bubbles by Fed and banks have enabled Apple and other companies to have their cake while eating their cake.
Thanks for the response ML1.
I should have had my first cup of coffee before I asked the question. I understand that when the debt carrying capacity hits the wall, the off shoring will be affected.
ML1, you make some excellent points. I would think that high debt levels would increase offshoring versus what you stated.
An observation.
Trump (I’m no fan) was elected via the US constitution and made his aims clear. For all his faults he’s executing on them. He was elected to do so.
Since when has the interest of any corporation over-ridden the will of the people? Since when did the will of the people (right or wrong)come second to a corporation, it’s management ad shareholders?
He is absolutely not executing on his bring the troops home from useless wars that do nothing for America. He is doubling down on that whole debacle.
“Since when did the will of the people (right or wrong)come second to a corporation, it’s management ad shareholders?”
Since forever?
And Trump reflects the will of a minority of the people.
“Forcing people to pay ten to 20 percent more for goods, or 100% as one analysts suggested to create a few jobs when unemployment is under four percent is not terribly smart, to say the least.” Trump also says it’ll pay for his tax cuts for the wealthy. Which means the not wealthy will pay for the tax cut. But only some of it. Actually, not very much of it at all. Look! Over there! It’s Hillary! Lock Her up! Lock Her up!
Anecdote from an economist I met: some years ago, a UN agency asked him to look into the potential economic consequences of alleged Anthropogenic Global Warming. After extensive study, he prepared two lists — one dealing with the potential costs of possible AGW, and the second dealing with the potential benefits (fewer cold weather deaths, expansion of farmland in northern climates, etc). His UN client took the second list, and threw it into the trash can. The UN was interested only in studies which supported its pre-determined conclusion.
This article reminded me of that conversation. Yes, there would be costs from repatriating iPhone production (although as most of the commenters here point out, the costs would be much less than the non-credible $2,000 iPhone quoted by Mish). But there would also be benefits — direct jobs created; indirect jobs created; technological and manufacturing capabilities created; tax revenues from businesses and from workers.
If we properly reflected potential benefits as well as potential costs, would repatriating industries be a net positive or a net negative?
Pay some dude at the i phone factory in china 50 dollars a month (if that!)turn round mark it up wait fer it………1500% sell for a grand lol…that’s why apple is worth a trill and cook can afford billion dolla yachts!
Your numbers don’t add up. More Trump scaremongering.
iphone 7 has $219 in parts and $5 in labor.
But somehow – building the same phone in America will add $1000 in labor costs.
Maybe you are having the folks at Tesla build it?
Apple doesn’t sell iPhone 7s any more. You need another red herring.
If I have to pay more for an iPhone— any more whatsoever— I will because I like the product at any price. BUT the money I spend extra would come out of my budget for restaurants, and home improvement by local workers. Point is, you don’t help the local workers and local businesses by driving up the cost of goods. Cheaper iPhones free my money to be spent locally.
If Apple has the same margin as other Android phone makers, you can buy a iPhone for less than half its price today. Point is, you don’t help the local workers and local businesses by driving up the cost of goods. Got it?
Pi314, would you favor limiting the profit margin on phones produced one hundred percent in the U.S.? Profit margin shouldn’t be the government ‘s business
Rather, buy an Android for little margin, a commodity-like device, or buy a high margin jelwry-like device such as an iPhone as you see fit. That choice should be ours, not Trump’s to make.
Outside of utilities, I am unaware of any profit margin limitations by the government. The marketplace dictates profit margins. So Android makers will continue to have low/no margin and iPhone will maintain high margin, with or without tariffs. iPhone is the first to break $1,000. No one is stopping Apple to charge $2,000 for a iPhone from a willing buyer like you.
$2000??? I can get a perfectly functional smart phone for $99!!!
But NO one will buy a $2000 phone so Apple would not increase the price, they would have to adapt or lose profits.
Consumers in certain countries already pay astronomical prices for iPhones. Bad economies make products affordable to only the rich. Trump is taking us there. He will be able to afford a current model iPhone no matter what. Joe the Plumber will have to settle for second hand, out-of-date models. Welcome to a third world economy, America.
I have to admit that I like low prices, but at what point due you draw the line? Locally, our small city’s utilities bills had been processed in town by local folks for roughly the last 100 years. A couple of years ago, the city jobbed out the invoicing to a firm in SW Florida. I wrote a letter complaining that I thought it was a terrible decision that our municipality could not process its own invoices as it had been doing for decades. I’m not sure what happened, but they brought the billing services back to our town and I am sure it keeps a few of our residents employed.
I posted two views – the up to 20% more seems more realistic
Apple couldn”t produce the Iphone entirely in the US from raw materials and up, at today’s quality, for even 10X the current price. The US military can’t produce communications devices of any complexity entirely without foreign inputs. Making Iphones to today’s standards is not some easy task that can be copied in a barn in Iowa overnight. It takes decades of refinements, worker training, supply lines, familiarity with production machinery etc…
The 20% may hold with an infinite time horizon. It will take a significant amount of time to make the capital investments required, but first people will have to convince themselves that ramping up production domestically will pay off over ten years of so … a lot of plant and auxillary plant needs to come into existence. Nobody can possibly know the way this will work out in advance.
It will be more than %20. If like you said many of the parts are made in Asia those will also be tax. So it is not just labor. It is also tariff in all supply-chain. Unless Mr. Orange wants everything made in the USA
Apple current margin on iPhones:
“As noted by Reuters, the entry-level iPhone X costs Apple around $357.50 to make. Apple sells that model for $999, meaning it reaps a gross margin of 64 percent. That number is slightly higher than the iPhone 8, which Apple sells for $699 at a gross margin of 59 percent.Nov 6, 2017”
So X has a margin of 64 percent and iphone 8 has a margin of 59%!
According to Bank of America Merrill Lynch as posted by Mish:
“U.S. would need 20% price increases to offset the incremental labor costs.”
So after moving production of iPhone X and iPhone 8 to USA Apple would have 44% Margin on iPhone X and 39% margin on iPhone 8.
I think apple would be OK.
The only thing hurting would be Apple CEO and Apple leadership in general since they would get less compensation.
Apple stock owners would also have accept Apple stock price dropping to take in to account the new lower profits margins.
Anyone who thinks that companies do NOT Maximize the price of their products for the maximum price they can get while maximizing their shipment volume in relation to the profits per one product and their overall profits is a bit naive.
If Apple could charge 20% extra now per iPhone they would be already doing it…
Apple current profit margins:
You’re leaving out a few billion in R&D….
Price would rise only to the point where Apple profitability suffering, due to reduced volume of sales at existing margin, forces them to become creative to reduce cost to restore volume & margin or reduce margin.
Necessity is the mother of invention and it might create some new ideas.
You could always leave the status quo as is and just tax Apple more to reduce their margin and give the tax take to reduce workers taxes.
I have ZERO sympathy for Apple, it’s margins or it’s shareholders. Let them adapt like workers have had to for a very long time.
“…Let them adapt like workers have had to for a very long time.”
The way to achieve that, is to ensure workers are as free to replace shareholders with cheaper ones, as shareholders are to replace workers that way. Meaning, get rid of idiotic “Intellectual Property,” non-compete and other laws and regulations that are preventing workers from setting up shop next door and keeping more of/all the value of the output they are creating.
If Apple could charge EXTRA 100 dollars for each iPhone NOW and still sell the same amount of phones they would do it since it would be pure profits and lift Apple’s stock price.
The current price of iPhones is MAXIMIZED based on what is the price where Apple gets most total profits when multiplying the profit per phone with the number of phones sold.
Companies are NOT charities, therefore companies ALWAYS maximize the profit they get from selling a product with the highest price per individual products that gives the highest sell through rate to maximize the total profit.
IF Apple would move assembly to USA the price of iPhones would be about the same as now and the only thing that would change is that the Apple profit margin would drop and therefore Apple stock would drop to compensate for the lower profit margin of the company.
Companies LOVE offshoring because they get more profit margin per product sold but offshoring of production in this current mass scale only works if the consumption is kept up and since the consumption has been kept up with continually increasing debt levels everywhere the current offshoring is unsustainable because the debt carrying capacity will hit a wall no matter what the idiots at Fed do sooner or later.
Offshoring of production and importation of millions of illegals and millions of low wage legals to drop wages while getting government benefits has only been possible due to Fed and the continually increasing debt levels by consumers, companies, states and federal government.
In a system where money would not be magically conjured out of thin air by Fed and banks the offshoring of production and importation of millions of illegals and millions of low wage legal immigrants to take away jobs from Americans and lower wages would have led to a crash of consumption levels and therefore crash of profits by companies so the current levels of offshoring and importation of illegals could have NEVER happened without the Fed…
You make some excellent points. Wouldn’t increasing debt levels equate to more offshoring?
Mish, why are you propagating fake news (100% increase!) when you know better? Disappointed.
And the US workers assembling them would also jump.
Just like they do in China, only sooner.
I don’t buy it, since numbers are not detailed they MUST be assuming the 70%ish margin would continue – it would not. The phone would still be around $1000 because if 60% of today buyer would pay $2000 than that would be the price. What would happen margins would compress and the stock price would drop. I do think we should drop tariffs, but this article is leaning towards fake news.
Real world supply and demand curves are always diagonal. Supply up sloping in price, demand downsloping. So when Apple faces an inward shift in the supply curve for “Iphone inputs,” it will end up buying less of them at a higher price. Which results in the supply of finished product shifting inward as well. Resulting in a similar change of equilibrium towards a somewhat higher price, and a somewhat lower supply.
In the real world, all supply and demand curves are sloped. So you always end up with the effect of supply shocks being distributed across all levels of production chains. Not with one player ending up eating all of it, leaving the rest unaffected. When costs go up, you end up with fewer units sold, at a higher price. Only how much fewer, and at how much higher a price varies.
Ironic how we can’t compete, labor-wise, with a communist country because of our own socialistic policy regarding wages. The arrogance of “we know better than the free market” works to the detriment of the American people, again.
There is NO free market in China.
It is all government controlled mercantilism and using the heavy hand of government to enable pollution of air, water and land as a competitive advantage topped by slave like wages, government controls on where Chinese people can live, controls on how much cash Chinese can withdraw, controls on how much currency Chinese can exchange, controls on which Chinese get a passport to travel abroad and controls on what is the value of Yuan.
USA companies also have to bring their production to China if they want to sell to Chinese market.
There is NO free internet, there is NO free anything in China.
And despite all this, American entrepreneurs and workers are so darned crippled by the need to feed an army of leeches in the government, legal and FIRE sectors, that the can’t successfully out innovate and outcompete saps stuck in the communist hellhole you just described..