“Apple can’t build an iPhone without China, but China can build many awesome phones without Apple.”
There is no doubt that a Trump presidency has believers of free and open trade among nations on edge. Free trade and globalization have been under attack from some segments in areas where job losses are being attributed to outsourcing. These jobs have been identified as those held by the middle class in the US. They are the midlevel skill jobs, which do not require college degrees but require skills that non-skilled workers would not possess.
Mr. Trump ran on his promises to bring those mid-level jobs back. However, many experts are skeptical of Trump’s dealmaking, or simple carrot and stick approach to the problem. These experts believe that the simple answers to a complex problem can only result in harming the two largest economies in the world — or the two main drivers of world economic growth. Like it or not the chances of the midlevel skill jobs coming back to the US are remote for a number of reasons. Sources say these are:
- It is not just the cost of labor that China has an advantage on, but the flexibility of the workforce as well. Chinese laborers live and work in large housing compounds that are just a short walk away from the factory floor. They are on call to work 12 hour shifts and churn out big volumes of products that can immediately meet customer demands.
- It is next to impossible for the US to replicate China’s supply chain network. We have to remember that the electronic gadgets that we have in our pockets or households, contain multiple parts. The efficiency that the proximity of suppliers and subcontractors in China is incomparable, and would take a massive build up for any other country to replicate.
- The number of midlevel engineers available in China is simply not there in the US.
The irony of a 45% tariff rate on all goods shipped from China to the US, is that the former is the biggest cellphone makers in the world, as well as its biggest consumers! This is something that is unique to China. According to some sources, China consumed twice as many smartphones as the US and Europe combined in the third quarter of this year. Waging war against your biggest potential market is simply a bad idea.
Another consideration is the Apple iPhone accounts for a large chunk of the iconic company’s revenues and year-on-year growth. Among Apple’s bevy of products, only the MacBook is still being made in the United States. A trade war can make a huge dent on Apple’s profitability, with China being not just its biggest supplier, but also its biggest market for smartphones.
Finally, we are talking about a product that is now as essential to the internet as a computer. Here’s an interesting quote about how smartphones have become an essential part of today’s consumers, “Smartphones are like trousers. They’re unnatural, a human artifice that our species survived many millennia without, but which has now proliferated to the point of being essential to everyday life across most of the globe.”
Competitive pricing and product distribution and availability, play an important role in determining the success of a product. If Trump goes on with his plans on trade, he will have to face the music, perhaps sooner rather than later.