The Gigantic Push: Apple's Potential US Production Expansion and Its Implications
Trump urges Apple to manufacture products domestically
For years, the production of iPhones predominantly took place in China. Recently, Apple has diversified its production, setting its feet in India due to escalating tensions with Beijing. But that’s not enough for President Trump. His demand to Apple was crystal clear: Produce in the US.
The US President Donald Trump has been relentless in his pursuit, disregarding the fact that Apple is now expanding production in India instead of China. In a recent event in Doha, he firmly emphasized the need for Apple to bring its production to the US.
Historically, Apple has leaned on contract manufacturers in China to construct its devices. To avert escalating tensions between Washington and Beijing, Apple has been establishing production facilities in India.As per the statement of Tim Cook in May, most iPhones sold in the US would be sourced from India in the current quarter, owing to the US-China trade dispute.
"We understood a long time ago that it's risky to pin all our hopes on one place," Cook said. "So we have been on the lookout for alternative sources for some parts, and we will continue." In a meeting shortly after Trump's inauguration, Apple declared investments of more than $500 billion in the US over the subsequent four years and pledged to create 20,000 new jobs.
On being questioned about cheaper labor in China, Trump's trade advisor, Howard Lutnick, previously replied, "Now there are robots that can do that." In the US, supposedly, "millions and millions" of jobs would be generated - positions for builders and mechanics to maintain the robots. Lately, Lutnick has been vocally saying, "The Chinese labor force that spends countless hours assembling iPhones - they are heading to America."
However, industry experts who have their fingers on the pulse of Apple's supply chains dismiss such notions. Dan Ives of investment firm Wedbush warns that if Apple were to build its iPhones in a factory in West Virginia or New Jersey, the device price would skyrocket to around $3,500. Even a 10% shift in the supply chain to the US would reportedly cost Apple three years and $30 billion, according to Ives.
- Donald Trump
- Apple
- India
- China
What If Apple Moved Production to the US?
If Apple were to move a considerable portion of its iPhone production to the United States, industry experts estimate that the cost to manufacture each iPhone could triple, rising from the current approximately $1,000 to around $3,000. This substantial hike is primarily due to higher labor and operational costs in the US in contrast to current manufacturing hubs like China and India[1].
Potential Consequences on Apple Products and Market
- Price Hike: A threefold increase in production costs could force Apple to raise iPhone prices significantly, making them less affordable and potentially reducing demand among US consumers.
- Supply Chain Diversification: Apple’s current strategy is to diversify manufacturing to reduce dependence on a single country. Moving production to the US would signify a shift aimed at strengthening supply chain security but at a steep cost[1].
- Margin Pressure: To maintain competitiveness despite increased costs, Apple may need to reduce its profit margins, which could impact overall profitability.
- Job Creation: Domestically shifting production could create manufacturing jobs in the US, but at a substantial cost to consumers and potentially to Apple’s competitive standing in the global market.
- Consumer Acceptance: There is a question mark over American consumers' willingness to shell out $3,000 for an iPhone, which could impact sales volumes[1].
In essence, while transitioning significant manufacturing to the US could boost supply chain security and create domestic jobs, the trade-off would be an enormous increase in production costs, leading to much higher prices for Apple products, potentially challenging market competitiveness, and sales[1].
[1] Source: various industry reports and analyst opinions.
- If Apple were to substantially move iPhone production to the US, as per industry estimates, the cost to manufacture each iPhone could triple, rising from the current approximately $1,000 to around $3,000.
- This substantial hike in production costs could force Apple to raise iPhone prices significantly, making them less affordable and potentially reducing demand among US consumers.
- Domestically shifting production could create manufacturing jobs in the US, but at a substantial cost to consumers and potentially to Apple’s competitive standing in the global market.
