Domestic manufacturing and the related jobs was one of the pillars of President-elect Donald Trump's campaign. Following his victory nearly two months ago, the pressure is now on to deliver to his voters and supporters, even if most of the reasons why U.S. manufacturing has declined are out of his control. Apple (NASDAQ:AAPL) is, and has always been, an easy political target, given its sheer size and the fact that it's common knowledge that iPhones are assembled in China.
Trump has vaguely offered Apple incentives to bring manufacturing jobs back, and while Apple and Foxconn are considering the idea, there are many hurdles that are arguably impossible to overcome. If anything, the company would likely rather kill U.S. manufacturing if it could, including its last vestige of domestic assembly, the Mac Pro. A couple of recent reports further underscore why Apple would be unable to bring iPhone production stateside, at least in any meaningful way beyond small political gestures (like the Mac Pro was, which is already a financial and operational headache for the company).
We built this city on rock and roll (and incentives)
Trump may tout that he's the most tremendous dealmaker in the observable universe, but The New York Times just published a must-read investigative report today detailing how China wooed Foxconn -- and by proxy, Apple -- with incentives worth billions of dollars. The local government in Zhengzhou offers a wide range of ongoing incentives that support Foxconn's iPhone manufacturing facility in the city that churns out half a million iPhones daily, earning Zhengzhou the nickname of "iPhone City." Approximately half of all iPhones are made in the city.
The details were discovered through confidential government records that the Times got a hold of. Apple says it knows that the government provides some level of support, but says it doesn't know the specifics surrounding the incentives that Foxconn has scored. Here's a key sentence in the report that might rain on Trump's parade: "As the Zhengzhou operation shows, China not only provides a large pool of labor; it also offers incentives that would be difficult to replicate in the United States or anywhere else."
Who's coming with me?
A separate report from qq (via DIGITIMES) yesterday points out that even if Apple and Foxconn wanted to move manufacturing to the U.S. in any non-trivial sense, many of the suppliers and component manufacturers would not be willing to follow suit. It's well known that the global consumer electronics supply chain is heavily concentrated in Asia, with manufacturing and assembly being but part of the value chain.
For these smaller companies, the prospect of expanding in the U.S. would be prohibitively expensive due to higher labor costs, operating costs, and regulatory costs given the U.S.'s more stringent environmental regulations. There are also concerns around the demographics of the labor pool, with Chinese workers typically being younger than their U.S. counterparts.
One of the key benefits of assembling in China is the close proximity to suppliers, which dramatically simplifies operations and reduces logistics costs. It also allows for flexibility to tweak and adapt manufacturing processes as challenges arise.
So don't expect Apple to start bringing those jobs back en masse. Sorry, Trump.
Evan Niu, CFA, owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.