As the US and China’s trade relationship teeters on the brink of collapse, Apple finds itself caught in a web of tariffs and supply chain vulnerabilities, threatening its prized iPhone business and the global economy.
Every iPhone comes with a label that tells you it was designed in California, but it’s likely to have been manufactured thousands of miles away in China. The country has become the second-largest market for Apple, and most iPhones sold there are made by Foxconn, a Taiwanese electronics manufacturer operating in China.
Apple has a significant presence in China, with a market share of over 20%.
The company established its first store in Shanghai in 2017 and has since expanded to multiple cities.
Apple's products are popular among Chinese consumers due to their high quality and sleek design.
In fact, 'one of the largest markets' for Apple, accounting for nearly 25% of the company's global sales, is China.
Apple's manufacturing partners, such as 'such as Foxconn', have also set up operations in China, employing thousands of workers.
The US and China, the world’s two biggest economies, are interdependent, but Trump‘s tariffs have upended that relationship, leaving both countries vulnerable to each other. The global supply chain that Apple has touted as a strength is now a vulnerability.
The US-China trade relationship is one of the most significant in the world, with bilateral trade exceeding $700 billion annually.
The US is China's largest trading partner, while China is the US's third-largest trading partner.
The two countries have a complex trade relationship, with both cooperation and competition.
The US has accused China of unfair trade practices, including 'intellectual property theft' and subsidies to state-owned enterprises.
In response, China has implemented various trade policies, such as the Belt and Road Initiative, to increase its economic influence globally.
A Lifeline Became a Threat
China has hugely benefited from hosting assembly lines for one of the world’s most valuable companies. It was a calling card to the West for quality manufacturing and helped spur local innovation. Apple entered China in the 1990s to sell computers through third-party suppliers, but it wasn’t until 2001 that the company officially arrived in China, through a Shanghai-based trading company, and started making products in the country.
China has experienced rapid economic growth since implementing market-oriented reforms in the late 1970s.
The country's GDP grew from $150 billion in 1980 to over $14 trillion in 2020, making it the world's second-largest economy.
China's economic expansion is driven by its large and skilled workforce, favorable business environment, and significant investments in infrastructure development.
According to the World Bank, China accounted for approximately 15% of global GDP in 2020, up from less than 2% in 1980.
As Beijing began trading with the world, Apple grew its footprint in what was becoming the world’s factory. The company partnered with Foxconn to make iPods, iMacs, and iPhones. Today, most of Apple‘s prized iPhones are manufactured by Foxconn, and the advanced chips that power them are made in Taiwan.
The Tariff Threat
Trump‘s administration has imposed tariffs on Chinese imports, including electronics. The tariffs have sparked a trade war between the two countries, with China retaliating against US imports. Apple secured exemptions on some tariffs during Trump‘s first term but is facing increased pressure this time around.
The company believes that the threat of steep taxes will encourage businesses to make products in America instead. However, many experts are skeptical of this claim, citing the complexity and cost of shifting production to the US.
Challenges Ahead
Any change to Apple‘s current supply chain status quo would be a huge blow for China, which is trying to kickstart growth post-pandemic. The country has created hundreds of thousands of jobs by hosting assembly lines for Western companies like Apple. However, the tariffs have also dealt a significant blow to the US.
China has imposed export controls on critical rare earth minerals and magnets it has in stores, dealing a blow to the US. The company is fighting off stiff competition from Chinese firms as the government pushes for advanced tech manufacturing in a race with the US.
What Does Apple Do Now?
Apple is fighting off pressure from Trump‘s administration, which is pushing for the company to move its assembly operation to the US. However, many experts believe that this is ‘pure fantasy.’ The company has been talking about diversifying its supply chain away from China since 2013 but has made little progress.
In recent months, Apple has announced a $500bn investment in the US, but it’s unclear whether this will be enough to appease Trump‘s administration for long. The company is facing increased pressure as more unexpected levies are expected, which could again leave the company with little manoeuvring room and even less time.
The Impact on Apple
Smartphone tariffs will not cripple Apple if they rear their head again, but regardless, will add ‘pressure – both operationally and politically’ to a supply chain that cannot be unwound quickly. The severity of the immediate crisis has been lessened, but it’s unclear whether this means Apple can relax.
The company is struggling to retain an edge among buyers seeking AI-powered phones in China, where Huawei and Vivo have taken market share from Apple. The company has had to limit the use of Bluetooth and Airdrop on its devices due to censorship concerns in China.
In conclusion, Apple‘s supply chain is a complex web of relationships with suppliers and manufacturers around the world. While the company has benefited from hosting assembly lines for one of the world’s most valuable companies, it now faces significant pressure from Trump‘s administration. The outcome of this pressure will have far-reaching implications for both Apple and China.
