NYT: Apple, China, Trump and trouble

Relocating the iPhone supply chain—as promised—is beyond even a president’s powers.

“We’re going to get Apple to start building their damn computers and things in this country instead of in other countries,” said candidate Trump last January, displaying in one soundbite the depth of his ignorance in several fields—among them computers, trade policy and the Asian electronics supply chain. See What Donald Trump Doesn’t Know About Apple Could Fill a Stadium.

Did the President elect read the New York Times’ 2013 Pulitzer-prize winning series on Apple? Did he get briefed on it? Just in case, the Times today gave him—and his advisors—another chance to get up to speed.

In a front page story titled How China Built ‘iPhone City’ With Billions in Perks for Apple’s Partner, the Times’ David Barboza takes a fresh look at Foxconn’s massive iPhone factory in Zhengzhou, China, how it came to be built there, and what it might take to bring those jobs back home. In the process Barboza shares for the first time the contents of a trove of confidential Chinese government records.

It’s a fascinating read. Among its findings:

  • Zhengzhou city officials lavished money and favorable investment terms on Foxconn. They promised discounted energy and transportation costs, lower social insurance payments, and more than $1.5 billion in grants for the construction of factories and dormitories that could house hundreds of thousands of workers.
  • The city government eliminated corporate taxes and value-added taxes that Foxconn pays for the first five years of production; they are half the usual rate for the next five.
  • The city also lowered Foxconn’s social insurance and other payments for workers, by up to $100 million a year.
  • Foxconn receives a bonus when it meets targets for exports. Those subsidies, according to the government records, totaled $56 million in the first two years of production, when the factory was exclusively dedicated to the iPhone. Today Foxconn’s factory, at peak production, employs 350,000 workers and turns out up to 350 iPhones a minute.

My favorite bit: The old Hong Kong U-turn, where, to comply with outdated Chinese export rules, cargo ships full of iPods for sale on the mainland would sail to Hong Kong, get cleared through customs, turn around and sail right back.

This is good reporting. I hope it gets read by someone with the President elect’s ear.

12 Comments

  1. Richard Wanderman said:
    I agree, it’s excellent reporting and a fascinating piece, even for those of us who have been following this closely.

    Maybe Apple should ramp up its Mac Pro production line in Austin and in the process, shut Trump up as well as the “Pro” users like me.

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    December 29, 2016
  2. John Kirk said:
    Well, the economics are clear. Protectionism is a bad idea.

    Unfortunately, the politics are clear too. Protectionism panders to voters and sounds appealing to the economically ignorant.

    What scares me is that history has shown that people are willing to make the same economic mistakes over and over again. I won’t say we do not learn the lessons of history. But it’s clear that we have not learned this lesson yet.

    0
    December 29, 2016
  3. George Providaked said:
    An important element to Apple supply chain and its competitive advantages pointed out originally by Horace Dedui, is Apple’s investment in its supply chain partners. Apple directly invests, but more interestingly Apple will buy advanced manufacturing equipment, classic example was the aluminum machining tools for Apple original Air, that it owns but furnishes to its partners. This substantially enhances Apple competitive advantages, since these machines are in limited supply and are not allowed to be used for competitors devices. There many similar deals and investments that Apple makes that support its supply chain and improve its competitive edge.

    Another area that The NY Times is particularly and intentionally blind is Apple’s attention to worker welfare including pay, workin( conditions, and educational advancement. While nitpickers, e.g., NY Times, complain about its completeness 500,000 to 1,000,000 workers directly affected it is the only company that aspires to address worker issues and in general does a pretty good job (not perfect) as well as reporting progress annually.

    These, in many ways, investments and activities can be seen as material production advantages as well as good will and political elements in navigating the complex world wide relationships especially in China.

    This is way beyond Trump and his teams understanding, thereby making his goals unlikely to be met.

    3
    December 29, 2016
    • Richard Wanderman said:
      Good points all. Remember Apple’s investment in the sapphire manufacturing plant in Arizona. It eventually failed but it was along the same lines you’re talking about.

      1
      December 29, 2016
      • Jonathan Mackenzie said:
        I thought of the same thing, Richard. It didn’t work out, but Apple clearly intended for that to be a success story about American manufacturing. My guess is that they are more than willing to invest more money in this country when they have a justifiable business case. If Trump wants to help them justify it with tax incentives or other carrots, I doubt they’ll balk. But the fact that a complex supply chain can’t be shuffled arbitrarily just to move some plants to the US is something I think even Trump understands.

        Trump’s great gift is talking like a 5th grader so stupid people will like him. I suspect he is not quite the buffoon he comes off as. Not saying he’s a genius, but it takes a certain kind of intelligence to successfully pull off what he did this past year. I cling to hope that Trump is saying some things because he’s aware of the politics even while he understands things are not as simple as he describes.

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        December 29, 2016
        • My prediction: Cook will throw Trump a bone. Based on how Sprint, Carrier and Ford were handled, Trump will take credit and declare mission accomplished no matter what Apple does.

          3
          December 29, 2016
          • Fred Stein said:
            Agree. Sadly Apple does make their “damned computers” here in the US, the MAC Pro line. And they are damned, or at least in 1000+days-since-refresh purgatory. 🙂
            Seriously, a strong dollar, a weak yuan, the global rise of nationalism / identity politics create risks that factor into AAPL’s stock price. Fortunately, it’s already priced in.

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            December 29, 2016
          • Robert Paul Leitao said:
            Among the fastest ways to create jobs across the country is through a national infrastructure investment plan initially financed by a foreign-sourced earnings repatriation tax holiday. I’m surprised this was left on the proverbial table for the next administration to enact. It’s an economic and political plum. Apple could use a portion of the net tax benefit derived from the tax holiday to create US-based jobs aligned with the company’s interests. A few high-profile investment projects that generate several hundred to a few thousand high-tech jobs, such as the creation of new research and development centers in strategically selected regions of the country, will be more than enough to ease political pressure. In the end it’s about job creation and ending the perceived loss of US jobs due to globalization. China is being used as a political metaphor. As new jobs are created, fewer and fewer voters will be concerned about chasing after the jobs that disappeared decades ago.

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            December 30, 2016

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