President Trump naively thinks it would be no big deal to get Apple (AAPL -0.57%) to completely upend its entire supply chain and move all manufacturing operations to the U.S. The tweeter in chief has been trying to incentivize such a move for years, without appreciating how the labor market has evolved in recent decades. Apple CEO Tim Cook has pointed out that the U.S. labor market "began to stop having as many vocational kind of skills" over time, crippling its ability to manufacture products domestically.
The self-proclaimed "Tariff Man" called on Apple to move manufacturing to the U.S. as recently as September, pointing to his favorite tool.
Apple prices may increase because of the massive Tariffs we may be imposing on China-but there is an easy solution where there would be ZERO tax, and indeed a tax incentive. Make your products in the United States instead of China. Start building new plants now. Exciting! #MAGA
— Donald J. Trump (@realDonaldTrump) September 8, 2018
Apple is now reportedly moving some production, but not stateside.
iPhone X production is coming to India
Reuters reports that Apple's largest contract manufacturer, Foxconn, is planning to start assembling high-end iPhones in India. Foxconn already has a manufacturing facility in the country where it makes devices for other companies like Xiaomi, and the Taiwanese company intends to invest over $350 million to expand capacity at the plant, according to the report. The initiative should create upwards of 25,000 local jobs.
This wouldn't be the first time that Apple has made iPhones in India via contract manufacturers. The company has previously had Wistron produce the iPhone 6s and iPhone SE at plants in India, which helped reduce the retail price of those devices by avoiding import duties. (Both of those models have since been discontinued.) High prices are easily one of Apple's biggest challenges in growing sales in the country. However, Foxconn is expected to start assembling flagship handsets from Apple's iPhone X portfolio.
iPhone X. Image source: Apple.
While Apple discontinued last year's iPhone X following the release of iPhone XS and XS Max in September, the Mac maker had reportedly restarted iPhone X production in November, in part to fulfill purchase obligations with Samsung, which was the sole supplier of OLED display panels for that device.
Caught in Trump's trade war
Of course, moving some production to neighboring India helps Apple diversify its supply chain, reducing the risk associated with Trump's ongoing trade war with China. The president specifically said last month that he might slap a 10% tariff on iPhones coming out of China, a statement that rattled investors, who fear that tariffs would only further increase prices at a time when Apple is already testing the limits of its pricing power. Just days later, the U.S. and China agreed to a 90-day cease-fire of escalations.
As far as sales in India go though, the iPhone X is unlikely to be a big seller, even if Apple lowers its price relative to the iPhone XS as it always does with previous-generation models. The production shift would be more about navigating trade tensions while earning political points with the Indian government than bolstering sales in the Indian market. To be clear, Apple needs all the help it can get in India, as its market share is a mere 1% there, according to Counterpoint Research. But the pricey iPhone X isn't the answer.
