Trade war: Why not tax iPhones made in China?

When Tim Cook makes the rounds on Capitol Hill, does he talk about jobs and the Zhengzhou bonded zone?

From Neil Cybart’s daily email to Above Avalon subscribers ($):

There are two questions. The first is whether Apple products will in some way be impacted by what appears to be inevitable U.S. tariffs on “Chinese imports.” The second is whether Apple would find itself caught in a bad spot when China responds to U.S. actions…

The vast majority of iPhones are assembled by Foxconn and Pegatron in China… As detailed in late 2016 by The New York Times, Foxconn’s Zhengzhou plant is located in a “bonded zone” which is subject to different import and export rules. Basically, it’s designed to make it easier for Apple to operate in China — no duties/taxes on imported components, no need to cross a physical border etc. It can be thought of as foreign soil despite being located somewhat in the middle of China. (One wonders if this special distinction ends up making it easier for this bonded zone to be exempt from any China/U.S. trade tussles…) It is in this bonded zone that Foxconn technically sells iPhones to Apple, which then turns around and sells them to its subsidiaries…

The view that Apple is merely a U.S. company that uses Foxconn to assemble its products in China ignores the significant, and positive, impact Apple plays in China’s economy. Foxconn is China’s largest private employer because of Apple. We are talking hundreds of thousands of workers, which doesn’t include the extensive web of other companies and industries set up to support iPhone production…

Turning to the U.S. vantage point, Apple isn’t just an importer of iPhones from China. Instead, the company supports a web of U.S.-based suppliers employing millions of jobs across the country. Washington is well aware of this fact, partly due to Apple becoming much more vocal about its impact on the U.S. economy. In what may not be a coincidence, Tim Cook was spotted on Capitol Hill in Washington, DC yesterday.

My take: No coincidence. Too bad the chemistry between Cook and Trump wasn’t better. But it may not matter. With Trump, you just never know.

2 Comments

  1. George Providakes said:

    With regards to Apple {or any other company) leverage with Trump/USA and China, I think this presumes very rational decision making. In the case of Trump, he will be looking for the Press advantage and blame Apple for not having more assembly jobs in the US and in China, while the leadership may be sensitive tot economic and technological advantage of Apple manufacturing, their priority is Chinese nationalism [not to be underrated], communist leadership authority, and economic leverage with US.

    This situation means Trump and perhaps Chinas reaction will be highly unpredictable and short term damage to either economy is not an obstacle.

    0
    March 14, 2018
  2. Gianfranco Pedron said:

    Just the same old politics being played. Different mirrors, different color smoke. The “in your face”, blunt and dumbed down rhetoric now reaches a broad segment of the population that felt forgotten and talked down to by conventionally educated politicians.

    We are taxed when we earn money AND we are taxed when we spend it. I think most people understand that a tax cut means you get to keep more of the money you earn. Many of those same people don’t quite understand who pays import tariffs and penalties.

    Well, it certainly isn’t Apple, and it’s not China. It’s the consumer, yes the same person who was cheering about the tax cut and is now cheering for (or indifferent about) tariffs on imported goods which result in higher retail prices. … and who will be wondering why, after all the hoopla about tax cuts, his/her wallet is still empty.

    0
    March 15, 2018

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