tim cook

What Do the China Tariff’s Mean for Tech Companies Like Apple?

tim cook and donald trump

It’s no secret that Donald Trump has imposed ridiculous tariffs on Chinese goods.   But what might be ridiculous is how he’s handling it with American companies.  On Saturday, Trump took aim at Apple after the tech giant said that the tariffs on China could result in price increases on popular consumer devices like AirPods, or the Apple Watch.  Trump’s response came in the form of a tweet, which is no surprise.  In the tweet, he indicated that there’s an “easy solution” to this problem.  His easy solution is for Apple to make their products in the United States, instead of China.  And while he has a point, I don’t think it’s quite that simple. Presumably, Apple has deals in place with China and Chinese companies in order to build the products there.

What I’ve said about these tariffs from the beginning is that it’s the United States that’s going to lose out, unfortunately.  I’m not saying that’s what I want, or think should happen, but the result will be higher prices and lower U.S. growth and competitiveness.  In a move on Friday, Trump has threatened an additional $267 billion of tariffs on China, a move that could cover virtually all Chinese-made goods entering the United States.

Further, Most of what US tech companies sell to China does not show up as US exports because the products aren’t made in the United States. Hence an iPhone, which is nominally an American product that sells well in China, isn’t actually an American export to China because the phones are mostly assembled in China.

As a result, restricting what American tech companies can sell to China doesn’t ultimately prevent many of those companies from selling to China, because of their global supply chains. In addition, there’s a good chance the restrictions would lead to unintended consequences:  American tech companies could shift more production overseas, rather than risk restrictions on their outbound American-made goods.

That said, Apple is the most vulnerable when it comes to these tariffs because they’re the ones doing the most business in China.  Alphabet and Facebook, for example, aren’t going to be bothered because their services have already been blocked.  And they’re services – not goods.  Apple is building the devices in China, and then bringing them into the United States. The company is arguably one of the only big U.S. tech firms to have a decently-sized business in China and is the fifth-largest smartphone vendor in the country. In the three months to the end of December, its Greater China revenues totaled $17.9 billion, up 11 percent year-on-year.

I think that these tariffs are troublesome.  Not just from an economic perspective, but what this means from a technology perspective.  Will innovation be hampered because of what country it was designed in, or which country it’s manufactured in?  I can understand restrictions that could have a national security issue, but iPhones and AirPods don’t fall into that category in my opinion.  Whatever way you spin it, this doesn’t look good.  Whether or not Apple will take Trump’s advice and start manufacturing in the United States remains to be seen, but it’s definitely unlikely.

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