Trade war: Apple wants to relocate parts of production out of China

According to a report by the usually very well-informed Japanese “Nikkei“, the US Apple group wants to relocate parts of its production out of China. This would involve 15% to 30% of production in China:

„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 reason for the planned relocation of production: the risks arising from the trade war between the USA and China:

„The California-based tech giant’s request was triggered by the protracted trade tensions between Washington and Beijing, but multiple sources say that even if the spat is resolved there will be no turning back. Apple has decided the risks of relying so heavily on manufacturing in China, as it has done for decades, are too great and even rising (..).“

With software developers, iOS programmers etc. Apple has about five million jobs in China. Apple itself employs 10,000 people in the China. More than 90% of Apple products are manufactured in China.

Apple itself knows that this relocation is a long-term and costly process: new supply chains must be established, and it will not be easy to find enough skilled personnel in countries that are sufficiently qualified. This would probably only be possible in high-tech countries with sufficient competence pools such as Taiwan or South Korea – but there the wages are significantly higher. At the same time the workers’ rights are at a much higher level!

This means that the planned relocation of production will either reduce the margin – or Apple will have to raise its prices. And this at a time of declining demand for the flagship iPhone, whose shipments in the 1st quarter of 2019 fell by a whopping -30% compared to the same quarter last year:

Remarkably, when Apple relocates production, it does not seem to waste any thought on producing more in the USA – wages there are simply too high for that (which is the reason for the migration of production from the USA, which has been going on for years; this in turn is connected with the country’s gigantic trade deficit – especially with China). So Trump does not seem to achieve his goal of re-industrialization. At least in the case of Apple he seems to weaken China. Beijing has admittedly reentered Trump’s offer of talks at the G20 summit. But the effects of Trump’s trade war are facts that even a more friendly rhetoric by the US government will not change.

As long as Trump doesn’t return behind the red line – the Huawei ban – there won’t be a deal between the USA and China.

Obviously getting along splendidly: Trump and Apple boss Tim Cook
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