Smartphone giant, Apple, is considering pulling a huge chunk of its production out of China amid the escalating tension over the unresolved US-China trade wars, a new report suggests. The pulling out is said to be already on the move as Apple has already asked its major suppliers to look into how much it would cost to pull out production from China and move them to other Southeast Asian countries and Mexico.
Apple has asked its major suppliers to evaluate the cost implications of shifting 15% to 30% of their production capacity from China to Southeast Asia as it prepares for a fundamental restructuring of its supply chain, the Nikkei Asian Review said in a new report.
Washington-Beijing trade war escalations
The tit-and-tat tariff escalations between the two economic superpowers have already been blown out into a trade where the tech industry is one of the most affected. The said move from Apple is highly motivated by the risks of doing business with China as the growing tension with Washington remains unsolved up to this day.
The United States has decided to raise tariffs on over $200 billion worth of Chinese goods. That’s a significant leap from the previous 10% to 25%. In obvious retaliation, China has also decided to impose tariffs on over $60 billion on U.S. goods starting June 1. Moreover, another $300 billion could be subjected to higher tariffs from China as early as July.
The situation was not made easier by Trump’s administration when the president signed an executive order that forced U.S. companies to sever ties and prevented them from doing business with Chinese smartphone maker, Huawei. One of the first companies to comply with the new executive order was Google when the tech giant revoked Huawei’s Android license, which powers Huawei’s and Honor phones’ system. Other companies like chip-maker, ARM, also severed business ties with Huawei as compliance to the said executive order.
As retaliation, the Chinese government hits back with stricter regulations against tech companies. The draft of the proposal stated that “to improve the security and controllability of key information infrastructure and maintain national security,” companies purchasing “network products and services that affect or may affect national security” will now need to evaluate the national security risk before doing so.
The stricter cybersecurity regulation that China is planning could potentially compromise the future of American companies in the country, a blow that would cost them huge revenue as China is one of the world’s strongest economic superpower.
As the trade war continues, Apple is concerned that it will eventually become more risky to deal with Chinese suppliers.
“A lower birthrate, higher labor costs and the risk of overly centralizing its production in one country. These adverse factors are not going anywhere,” said one executive with knowledge of the situation. “With or without the final round of the $300 billion tariff, Apple is following the big trend [to diversify production],” giving itself more flexibility, the person added.
The relationship between China and Apple
Chinese production has played a huge role in the global success of Apple over the past few decades. The country has not only been able to rally hundreds of thousands of skilled workers at short notice to fill rapidly rising orders as the company grew, but an extensive and complex ecosystem of components, logistics and talent has built up in and around Apple manufacturing sites.
On the other hand, the presence of Apple in China has created millions of jobs for Chinese skilled workers. Some 5 million Chinese jobs rely on Apple’s presence in the country, including those of more than 1.8 million software and iOS App developers, according to a study available on the company’s website. Apple itself employs 10,000 staff in China, the company said.
This relationship between China and Apple makes it difficult to replicate in a short period of time, suppliers admit.
“It’s really a long-term effort and might see some results two or three years from now,” said one supplier. “It’s painful and difficult, but that’s something we have to deal with.”
Nonetheless, it seems that Apple is eager to move out its production from China over fears brought by the trade war. Furthermore, the report also suggest that even if the tension between U.S. and China come to an end as the trade war is resolved, Apple is less likely to backpedal from its plans to move out, highlighting other risks that come in doing business in the country.