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Attempts by China to leverage market access into self-censorship by U.S. companies should also be treated as trade violations that are subject to retaliation.

Attempts by China to leverage market access into self-censorship by U.S. companies should also be treated as trade violations that are subject to retaliation. Thank you, Ben, for this honest appraisal which involves sticking out your neck and perhaps even harming your ability to travel to China or expand your business. Regarding this comment about Apple: And then there is Apple: the company is deeply exposed to China both in terms of sales and especially when it comes to manufacturing. The reality is that, particularly when it comes to the latter, Apple doesn’t have anywhere else to go. That may be true of manufacturing now, but will it be true 5 years from now? Surely Cook et al saw the writing on the wall years ago when it articulated some of its core values around privacy. Conflict is inevitable, and the risk associated with having all your manufacturing eggs in one basket is too great. We saw the announcement of Apple's manufacturing initiative in Texas, and there are other locations for electronics sourcing and assembly throughout Asia. How much of Apple's supply chain could be relocated elsewhere?

seanmcdirmid 7y ago
Note that Cook became CEO because of his logistics and operations work in China, so there is a lot of legacy to go on. Apple assembles iPhones in Brazil and I believe India now, but these are mostly for high tariff reasons. Much of what goes into an iPhone isn’t made in china (and what is made in China can easily be made elsewhere), but they are mostly made in east Asia, so having assembly done somewhere in the region. Apple could always go to Taiwan (labor is more expensive, but they could maybe rely on automation more) or Vietnam. However, whatever they would do would cost them, a cost they could pay if needed but probably not one they want to pay right now.
- onlyrealcuzzo 7y ago
  But they don't own any factories, right? Wouldn't it destroy Foxconn and only defer revenue a bit for Apple? Maybe a few people who just gotta have the newest, latest, and greatest gadget will switch to a Flagship android because they can't wait for the new iPhone. But most people are pretty loyal / trapped into their mobile ecosystem. I doubt it would materially affect Apple's market share or their revenue long-term. Isn't the entire manufacturing cost of an iPhone $9? Even if it doubled, their profit on iPhones would only drop by like 5%... I think their latest pricing experiments have shown that there really is a limit to how much people will pay for a new iPhone, and they've found it, so I don't think they could pass the price onto the consumer. But it's only $10 on a $900 phone...
  - seanmcdirmid 7y ago
    Logistics and operations! Yes, Apple outsources to Foxconn, but if Foxconn’s expenses go up, they are going to pay for it eventually (and possibly up front). A few hundred million or even a few billion isn’t going to hurt Apple in the long run, sure, but it will definitely hurt in the short.
  - bonestamp2 7y ago
    > Wouldn't it destroy Foxconn and only defer revenue a bit for Apple? They might not even have to do that... from what I understand, they are working with Foxconn to move some production out of China. Both companies can benefit from spreading some of the political risk around.
  - rtkwe 7y ago
    Apple would still have to find and build a relationship with a new assembly partner, that would cost a lot of money and most likely have some quality missteps along the way as the new partner trains employees and sets up quality control. That would take several months to a year to iron out all the kinks and in the mean time Apple would have very limited stock.
  - zjaffee 7y ago
    The manufacturing cost of an iphone is closer to 400 dollars, the cost of manufacturing doubling would be a huge hit to apple.
    - seanmcdirmid 7y ago
      That is way above its assembly costs, you must be including components also right?
  - baybal2 7y ago
    > But they don't own any factories, right? Wouldn't it destroy Foxconn and only defer revenue a bit for Apple? Do you realise that there would be no shortage of customers for them in China after Apple leaves? The biggest problem as I wrote in a post below is that Apple may leave China, but Foxconn can not. It will still have an absolutely mammoth manufacturing capacity that will be sold to Apple's competitors the moment they leave. The biggest shock to me in recent days was seeing an advertisement for a humongous amounts of manufacturing machinery being pretty much liquidated by Foxconn. With the amount of stuff being sold, it can possibly be a double digit of Iphone production capacity.
- euroclydon 7y ago
  I keep thinking, with the level of (superpower conflict) risk we're talking about here, Taiwan certainly, and Vietnam probably, are not far enough away from China to be safe.
  - seanmcdirmid 7y ago
    Right, if the region goes to hell, then that would disrupt everything for a decade or so until all the component manufacturers could be replicated elsewhere.
- CharlesColeman 7y ago
  > However, whatever they would do would cost them, a cost they could pay if needed but probably not one they want to pay right now. Apple probably should pay. They aren't a hardship case and being so dependent on an authoritarian regime isn't a good look right now [1]. Plus geopoltical risk is a thing and it would be smart for them to mitigate it. [1] I have the world's smallest violin right here if they want to complain about screw manufacturing again. Didn't they setup all kinds of specialized factories in China already? They can build all the a screw factories they need.
- baybal2 7y ago
  > Much of what goes into an iPhone isn’t made in china (and what is made in China can easily be made elsewhere), but they are mostly made in east Asia, For the last years a lot of Apple's supply chain companies were getting visits from their Chinese C-level, with a question if they can think of relocation somewhere else. It's not a secret at all in SZ that Apple is leaving, and not only mainland China, but possibly Foxconn as well. For that reason, it's said that Foxconn now tries to lure them back to Taiwan with "incredible offers." I know a fair lot of engineers working in both Foxconn plant, as well as Apple itself. It's funny to hear that it would be a company like Apple who would completely ignore the risk of supply chain dependence. From what I heard, for the last 10 years, Apple didn't do anything, but hope for bad things to not to happen. Their screen glass, a surprisingly high tech product, is made in China by an American company. Their PCB's are locally made. Bodywork and plastics has been outsourced by them since Iphone 4. Some passives are made locally, some come from Taiwan. Most importantly, a point Apple doesn't like to be public about, is that they heavily rely on outsourced and captive engineering in China.
- wenc 7y ago
  > Taiwan (labor is more expensive, but they could maybe rely on automation more) A few years ago, I was surprised to learn that Taiwan actually has low-cost but high-end (university-educated) labor. Ph.D. graduates abound. It is an advanced economy yet wages are surprisingly low due to its export-focused strategy and various other structural causes. Cost of living in Taiwan also appears to be pretty low, which makes low wages bearable. It is a low-growth economy and it doesn't have the glitziness of Hong Kong, but everything feels 1st world (clean, technically advanced, efficient) so I'm not sure how the balance sheet there actually works out. (that said, I understand many recent TW graduates tend to seek their fortunes in mainland China, where the pay is better.)
  - dragontamer 7y ago
    > A few years ago, I was surprised to learn that Taiwan actually has low-cost but high-end (university-educated) labor. Ph.D. graduates abound. Considering that TSMC is the only 7nm fab lab in large scale operation, I'm not surprised. TSMC, and Taiwan, have always been on the cutting edge, and have even out-competed the US recently (Intel getting stuck at 12nm, GloFo giving up the race entirely). The USA needs to give a good, long, look at what Taiwan is doing and needs to wonder how we lost our chip supremacy to them. I hold no malice against them... they just did it better than we did. Fair and square. #2 in the race btw, is probably going to be Samsung (South Korea). Intel is "almost done" with 10nm (which should be competitive vs Samsung/TSMC 7nm), but they're definitely lagging behind.
    - rossdavidh 7y ago
      Having worked in the semiconductor industry from 1989-2004, I can speak to this a little. TSMC basically invented the model of manufacturing semiconductors for design shops, at scale. They could economically turn out small-scale runs at cutting-edge geometries, and were willing and able to work with small design shops (many in the U.S.) to do it. It was described at the time as "out-sourcing your design and sales". Companies that could not get behemoths like Intel or National Semiconductor or T.I. or the like to manufacture for them, who also couldn't afford to build and run a modern semiconductor fab, could get competitive manufacturing of their designs done. It was a brilliant strategy, and it allowed them to be less dependent on any one design working/selling well, since they had many different companies competing to fill their factories for them.
- seniorivn 7y ago
  you are right, but apple has enough cash at their hand to buy a few foxconn companies, so if they want, they can invest it in a way that's gonna secure them from political difficulties, the main issue is that Chinese labor/manufacture market goes in package with domestic market, apple can't manufacture iphones in others countries and keep selling in china, they would be banned, so until they are ready to stop selling their iphones to Chinese citizens, they will have to manufacture iphones for the whole world there(with exceptions, but still)
Despegar 7y ago
>but will it be true 5 years from now? Yes. Apple is never going to leave China. They've already expanded assembly to other countries like Brazil and India to get around protectionist barriers, but there's never going to be a time in the next 5 or 10 years where no assembly takes place in China. The scale Apple is operating at is just too big. And just like Brazil or India, China can implement its own protectionist barriers at any time so there'd still be a reason to do assembly locally.
paxys 7y ago
> but will it be true 5 years from now? It will most definitely be true 5 years from now. It may not be true 15 years from now if Apple start investing heavily elsewhere today.
guelo 7y ago
As far as I know China has done little to threaten it's status as the world's manufacturer, anyone can build there. It is access to their internal markets that they've used as leverage. For example Google is not allowed to sell their products to their internal markets but they are allowed to manufacture their devices there without problems.
- rodneyzeng 7y ago
  But Samsung factory has left China. And more other factories have left China as well. Yeah anyone can build there but fewer and fewer are willing to. That may be true for the trend from now on.
larrysalibra 7y ago
> Apple doesn’t have anywhere else to go. Apple doesn’t have anywhere to go is a comment on the consumer market, not manufacturing. They are heavily dependent on revenue from China.
baybal2 7y ago
> That may be true of manufacturing now, but will it be true 5 years from now? Not even a wildest guess can tell now. As for Vietnam, it's the closes substitute. Demographically, Vietnam is incomparably better off than China. On the level of technical capability it's late nineties China. The few manufacturers venture there only for abundant skilled workforce. Big players like Foxconn and Samsung can build entire cities housing a big part of the supply chain inside, but I don't see even Samsung being that committed at the moment. Samsung's plant in Vietnam imports all components, assemblies and etc, from outside, including Samsung parts factories in China. A lot of young bright Vietnamese are travelling for work to... China — something unimaginable even 10 years ago. In SZ, there is a serious talk going on about China importing foreign workforce by millions — again, something unthinkable 10 years ago. The biggest appeal of China as a manufacturing destination now is its domestic industry, not Foxconn and Flextronics megaplants. To get manufacturing appeal, Vietnam will need at foremost develop its domestic manufacturing — and that's easier said than done, in comparison to just inviting Foxconn and have them do everything for you. To the point above, there is quite a twist now: more and more Chinese manufacturing SMEs are migrating to Vietnam, along with their customers. Even though, they outright loose cost wise, they believe that Vietnam is a better bet on demographics, and immediate gain from "trade war refugees'" clients is big enough for now.
- novok 7y ago
  Seeing how Vietnam is also controlled by a single authoritarian party, couldn't it end up the same as china eventually?
  - seanmcdirmid 7y ago
    Vietnam is too small to go it alone, and that insecurity means that they are more aggressive about integrating themselves into the world economy, and making allies with the west (as a counter to China, ironically).
surge 7y ago
As China has become increasingly nationalistic, xenophobic, etc recently (foreigners in China are seeing more and more hostility and visits by cops, and minders that follow them and keep tabs) they've been taking their business opportunities to Vietnam, etc. Apple should work to do the same.
- throwawy4trueth 7y ago
  That's true and unfortunate. I wish that didn't happen. But you don't know the root cause: Westerner who are mostly activists with irrational feeling that they have better "value" and interpret the Chinese behaviour in their own cultish belief systme caused the reaction which is also irrational. Good part is (ironically) China won't lost control because of its one party system. It's also powerful enougth that US and Western countries can not bomb it like they did in Middle East.
  - cromwellian 7y ago
    So if a Westerner to criticize anything in China that needs improvement, they need the cops and minders to follow them around? Even stuff that Chinese themselves criticize, like the baby formula scandal, if done by a Westerner, sets off 'glass heart' feelings.
- silexia 7y ago
  US companies need to leave China and other totalitarian states. Our doing business with them just prolongs the suffering of their citizens. Or maybe we should help overthrow evil governments.
  - chrisco255 7y ago
    Oh boy haven't we learned anything in the past 80 years of doing just that?
totaldude87 7y ago
>>Cook et al saw the writing on the wall years ago exactly, i've read somewhere that they are trying to move further to south/south east Asia, like India , Philippines etc..
perlpimp 7y ago
China is moving away from manufacturing, into services and consumption, granted it would be forward looking to be finding other avenues, switching a game up. Just like in old time, ipod mini was growing some competition, it was cancelled and nano was created, delegitimizing competition. Whether there is a foresight for that is the question.
throwawy4trueth 7y ago
Just a way to force other countries to open to color revolution attack? That's very naive thoughts. What happened in Middle East and East Europa already educated Chinese. However westners themselves are not aware of the issue. They believe that's a human rights and freedom of speech issue.

seanmcdirmid 7y ago

Note that Cook became CEO because of his logistics and operations work in China, so there is a lot of legacy to go on. Apple assembles iPhones in Brazil and I believe India now, but these are mostly for high tariff reasons. Much of what goes into an iPhone isn’t made in china (and what is made in China can easily be made elsewhere), but they are mostly made in east Asia, so having assembly done somewhere in the region. Apple could always go to Taiwan (labor is more expensive, but they could maybe rely on automation more) or Vietnam. However, whatever they would do would cost them, a cost they could pay if needed but probably not one they want to pay right now.

onlyrealcuzzo 7y ago
But they don't own any factories, right? Wouldn't it destroy Foxconn and only defer revenue a bit for Apple? Maybe a few people who just gotta have the newest, latest, and greatest gadget will switch to a Flagship android because they can't wait for the new iPhone. But most people are pretty loyal / trapped into their mobile ecosystem. I doubt it would materially affect Apple's market share or their revenue long-term. Isn't the entire manufacturing cost of an iPhone $9? Even if it doubled, their profit on iPhones would only drop by like 5%... I think their latest pricing experiments have shown that there really is a limit to how much people will pay for a new iPhone, and they've found it, so I don't think they could pass the price onto the consumer. But it's only $10 on a $900 phone...
- seanmcdirmid 7y ago
  Logistics and operations! Yes, Apple outsources to Foxconn, but if Foxconn’s expenses go up, they are going to pay for it eventually (and possibly up front). A few hundred million or even a few billion isn’t going to hurt Apple in the long run, sure, but it will definitely hurt in the short.
- bonestamp2 7y ago
  > Wouldn't it destroy Foxconn and only defer revenue a bit for Apple? They might not even have to do that... from what I understand, they are working with Foxconn to move some production out of China. Both companies can benefit from spreading some of the political risk around.
- rtkwe 7y ago
  Apple would still have to find and build a relationship with a new assembly partner, that would cost a lot of money and most likely have some quality missteps along the way as the new partner trains employees and sets up quality control. That would take several months to a year to iron out all the kinks and in the mean time Apple would have very limited stock.
- zjaffee 7y ago
  The manufacturing cost of an iphone is closer to 400 dollars, the cost of manufacturing doubling would be a huge hit to apple.
  - seanmcdirmid 7y ago
    That is way above its assembly costs, you must be including components also right?
- baybal2 7y ago
  > But they don't own any factories, right? Wouldn't it destroy Foxconn and only defer revenue a bit for Apple? Do you realise that there would be no shortage of customers for them in China after Apple leaves? The biggest problem as I wrote in a post below is that Apple may leave China, but Foxconn can not. It will still have an absolutely mammoth manufacturing capacity that will be sold to Apple's competitors the moment they leave. The biggest shock to me in recent days was seeing an advertisement for a humongous amounts of manufacturing machinery being pretty much liquidated by Foxconn. With the amount of stuff being sold, it can possibly be a double digit of Iphone production capacity.
euroclydon 7y ago
I keep thinking, with the level of (superpower conflict) risk we're talking about here, Taiwan certainly, and Vietnam probably, are not far enough away from China to be safe.
- seanmcdirmid 7y ago
  Right, if the region goes to hell, then that would disrupt everything for a decade or so until all the component manufacturers could be replicated elsewhere.
CharlesColeman 7y ago
> However, whatever they would do would cost them, a cost they could pay if needed but probably not one they want to pay right now. Apple probably should pay. They aren't a hardship case and being so dependent on an authoritarian regime isn't a good look right now [1]. Plus geopoltical risk is a thing and it would be smart for them to mitigate it. [1] I have the world's smallest violin right here if they want to complain about screw manufacturing again. Didn't they setup all kinds of specialized factories in China already? They can build all the a screw factories they need.
baybal2 7y ago
> Much of what goes into an iPhone isn’t made in china (and what is made in China can easily be made elsewhere), but they are mostly made in east Asia, For the last years a lot of Apple's supply chain companies were getting visits from their Chinese C-level, with a question if they can think of relocation somewhere else. It's not a secret at all in SZ that Apple is leaving, and not only mainland China, but possibly Foxconn as well. For that reason, it's said that Foxconn now tries to lure them back to Taiwan with "incredible offers." I know a fair lot of engineers working in both Foxconn plant, as well as Apple itself. It's funny to hear that it would be a company like Apple who would completely ignore the risk of supply chain dependence. From what I heard, for the last 10 years, Apple didn't do anything, but hope for bad things to not to happen. Their screen glass, a surprisingly high tech product, is made in China by an American company. Their PCB's are locally made. Bodywork and plastics has been outsourced by them since Iphone 4. Some passives are made locally, some come from Taiwan. Most importantly, a point Apple doesn't like to be public about, is that they heavily rely on outsourced and captive engineering in China.
wenc 7y ago
> Taiwan (labor is more expensive, but they could maybe rely on automation more) A few years ago, I was surprised to learn that Taiwan actually has low-cost but high-end (university-educated) labor. Ph.D. graduates abound. It is an advanced economy yet wages are surprisingly low due to its export-focused strategy and various other structural causes. Cost of living in Taiwan also appears to be pretty low, which makes low wages bearable. It is a low-growth economy and it doesn't have the glitziness of Hong Kong, but everything feels 1st world (clean, technically advanced, efficient) so I'm not sure how the balance sheet there actually works out. (that said, I understand many recent TW graduates tend to seek their fortunes in mainland China, where the pay is better.)
- dragontamer 7y ago
  > A few years ago, I was surprised to learn that Taiwan actually has low-cost but high-end (university-educated) labor. Ph.D. graduates abound. Considering that TSMC is the only 7nm fab lab in large scale operation, I'm not surprised. TSMC, and Taiwan, have always been on the cutting edge, and have even out-competed the US recently (Intel getting stuck at 12nm, GloFo giving up the race entirely). The USA needs to give a good, long, look at what Taiwan is doing and needs to wonder how we lost our chip supremacy to them. I hold no malice against them... they just did it better than we did. Fair and square. #2 in the race btw, is probably going to be Samsung (South Korea). Intel is "almost done" with 10nm (which should be competitive vs Samsung/TSMC 7nm), but they're definitely lagging behind.
  - rossdavidh 7y ago
    Having worked in the semiconductor industry from 1989-2004, I can speak to this a little. TSMC basically invented the model of manufacturing semiconductors for design shops, at scale. They could economically turn out small-scale runs at cutting-edge geometries, and were willing and able to work with small design shops (many in the U.S.) to do it. It was described at the time as "out-sourcing your design and sales". Companies that could not get behemoths like Intel or National Semiconductor or T.I. or the like to manufacture for them, who also couldn't afford to build and run a modern semiconductor fab, could get competitive manufacturing of their designs done. It was a brilliant strategy, and it allowed them to be less dependent on any one design working/selling well, since they had many different companies competing to fill their factories for them.
seniorivn 7y ago
you are right, but apple has enough cash at their hand to buy a few foxconn companies, so if they want, they can invest it in a way that's gonna secure them from political difficulties, the main issue is that Chinese labor/manufacture market goes in package with domestic market, apple can't manufacture iphones in others countries and keep selling in china, they would be banned, so until they are ready to stop selling their iphones to Chinese citizens, they will have to manufacture iphones for the whole world there(with exceptions, but still)

Despegar 7y ago

>but will it be true 5 years from now? Yes. Apple is never going to leave China. They've already expanded assembly to other countries like Brazil and India to get around protectionist barriers, but there's never going to be a time in the next 5 or 10 years where no assembly takes place in China. The scale Apple is operating at is just too big. And just like Brazil or India, China can implement its own protectionist barriers at any time so there'd still be a reason to do assembly locally.

paxys 7y ago

> but will it be true 5 years from now? It will most definitely be true 5 years from now. It may not be true 15 years from now if Apple start investing heavily elsewhere today.

guelo 7y ago

As far as I know China has done little to threaten it's status as the world's manufacturer, anyone can build there. It is access to their internal markets that they've used as leverage. For example Google is not allowed to sell their products to their internal markets but they are allowed to manufacture their devices there without problems.

rodneyzeng 7y ago
But Samsung factory has left China. And more other factories have left China as well. Yeah anyone can build there but fewer and fewer are willing to. That may be true for the trend from now on.

larrysalibra 7y ago

> Apple doesn’t have anywhere else to go. Apple doesn’t have anywhere to go is a comment on the consumer market, not manufacturing. They are heavily dependent on revenue from China.

baybal2 7y ago

> That may be true of manufacturing now, but will it be true 5 years from now? Not even a wildest guess can tell now. As for Vietnam, it's the closes substitute. Demographically, Vietnam is incomparably better off than China. On the level of technical capability it's late nineties China. The few manufacturers venture there only for abundant skilled workforce. Big players like Foxconn and Samsung can build entire cities housing a big part of the supply chain inside, but I don't see even Samsung being that committed at the moment. Samsung's plant in Vietnam imports all components, assemblies and etc, from outside, including Samsung parts factories in China. A lot of young bright Vietnamese are travelling for work to... China — something unimaginable even 10 years ago. In SZ, there is a serious talk going on about China importing foreign workforce by millions — again, something unthinkable 10 years ago. The biggest appeal of China as a manufacturing destination now is its domestic industry, not Foxconn and Flextronics megaplants. To get manufacturing appeal, Vietnam will need at foremost develop its domestic manufacturing — and that's easier said than done, in comparison to just inviting Foxconn and have them do everything for you. To the point above, there is quite a twist now: more and more Chinese manufacturing SMEs are migrating to Vietnam, along with their customers. Even though, they outright loose cost wise, they believe that Vietnam is a better bet on demographics, and immediate gain from "trade war refugees'" clients is big enough for now.

novok 7y ago
Seeing how Vietnam is also controlled by a single authoritarian party, couldn't it end up the same as china eventually?
- seanmcdirmid 7y ago
  Vietnam is too small to go it alone, and that insecurity means that they are more aggressive about integrating themselves into the world economy, and making allies with the west (as a counter to China, ironically).

surge 7y ago

As China has become increasingly nationalistic, xenophobic, etc recently (foreigners in China are seeing more and more hostility and visits by cops, and minders that follow them and keep tabs) they've been taking their business opportunities to Vietnam, etc. Apple should work to do the same.

throwawy4trueth 7y ago
That's true and unfortunate. I wish that didn't happen. But you don't know the root cause: Westerner who are mostly activists with irrational feeling that they have better "value" and interpret the Chinese behaviour in their own cultish belief systme caused the reaction which is also irrational. Good part is (ironically) China won't lost control because of its one party system. It's also powerful enougth that US and Western countries can not bomb it like they did in Middle East.
- cromwellian 7y ago
  So if a Westerner to criticize anything in China that needs improvement, they need the cops and minders to follow them around? Even stuff that Chinese themselves criticize, like the baby formula scandal, if done by a Westerner, sets off 'glass heart' feelings.
silexia 7y ago
US companies need to leave China and other totalitarian states. Our doing business with them just prolongs the suffering of their citizens. Or maybe we should help overthrow evil governments.
- chrisco255 7y ago
  Oh boy haven't we learned anything in the past 80 years of doing just that?

totaldude87 7y ago

>>Cook et al saw the writing on the wall years ago exactly, i've read somewhere that they are trying to move further to south/south east Asia, like India , Philippines etc..

perlpimp 7y ago

China is moving away from manufacturing, into services and consumption, granted it would be forward looking to be finding other avenues, switching a game up. Just like in old time, ipod mini was growing some competition, it was cancelled and nano was created, delegitimizing competition. Whether there is a foresight for that is the question.

throwawy4trueth 7y ago

Just a way to force other countries to open to color revolution attack? That's very naive thoughts. What happened in Middle East and East Europa already educated Chinese. However westners themselves are not aware of the issue. They believe that's a human rights and freedom of speech issue.