Roundsourcing Podcast: The iPhone and Us
Apple iPhones come from China. Should the U.S. slap huge tariffs on their import? Let’s consider the facts.
Money spent on producing an iPhone goes to engineering, materials, labor, plant, equipment, distribution and profit. 30% of what we pay for an iPhone goes to Apple as US company profits, another 2% for Apple affiliates that receive profits outside the U.S. That’s a third of what we pay going to a U.S. based company. How much of the consumer’s payment gets spent in China? Only about 2% pays for Chinese labor. 31% pays for raw materials from sources around the world, including some rare-earth minerals only found in Mongolia. South Korean component makers get 7% of the Apple iPhone pie. 15% goes to wholesalers and retailers. Sum it up and “cheap labor” has little to do with the cost of an iPhone. An iPhone ends up as a Chinese import, but it’s an American product with global sourcing and sales.
It’s possible to assemble the final product of an iPhone in America, but not economically prudent for Apple. The company cannot find in the U.S. what’s available in China’s assembly centers. As the late Steve Jobs told President Obama, it’s not cheap labor that drives Apple to do final assembly in China. Chinese labor rates are much higher than wages in Vietnam or Bangladesh. It’s the economies of production and scale available in China. Special economic zones host hundreds of concentrated factory spaces and labor forces ready on demand to produce on demand, so that opening and closing production lines is possible on central command. Apple outsources this function to companies that have multiple customers, so that if one customer stops ordering, another picks up the slack. America is not organized this way, as manufacturing sites and workforces are scattered throughout cities and small towns, without the force of government intervention and planning that the USA will never embrace.
The iPhone is an American product sourced of U.S.-based inspiration and design. Conceived and engineered in California and North Carolina, its brain, chips, audio elements and glass are made by workers in Texas, Kentucky, Ohio, California and other states. Apple sources everything where quality and cost dictate, even having its arch-rival Samsung provide its microchips. A French-Italian company in Switzerland provides one critical component where it’s best in class. Japan, South Korea, Taiwan and other high-wage countries contribute key parts of an iPhone.
The global supply chain that produces an iPhone has brought the world a great product at an affordable price, sourced globally, but a quintessentially American product. If someone shouts that Apple should stop shipping jobs to China, the speaker is woefully uninformed and spouting nonsense. All that slapping a punishing tariff on Apple because final assembly is done in China would do is to raise the cost to consumers. Driving up the price of things in a misguided effort to force everything to be produced in America will punish most those who can afford it least. Globalization allows a business to source everything where it makes sense to do so. That’s a liberty we should all embrace.
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Joseph J. Dehner Joe Dehner concentrates his practice on multinational business and securities disputes. He counsels a wide variety of companies, domestic and foreign, on issues confronting global business, including transnational investment, mergers and acquisitions, joint ventures, customs and trade issues, international business structures, distribution and agency agreements and the resolution of international disputes.