Trump gives Apple impractical advice on escaping his trade war with China

By

Donald Trump speaks to supporters at an immigration policy speech at the Phoenix Convention Center in Arizona.
Pres. Trump wants Apple to assemble the iPhone in the U.S., but that would do almost nothing to change the U.S. trade deficit.
Photo: Gage Skidmore/Flickr CC

This week, Apple warned the Trump administration that tariffs going into effect against China will raise the cost of many of its products.

President Donald Trump responded with a tweet suggesting that Apple build its products in the U.S. instead of China. Unfortunately, it’s not that simple.

A letter sent to the U.S. Trade Representative says the Apple Watch, AirPods, HomePod, Mac mini, and Apple Pencil would be caught in the new tariffs that the Trump administration has proposed against products made in China. “It is difficult to see how tariffs that hurt U.S. companies and U.S. consumers will advance the Government’s objectives with respect to China’s technology policies,” Apple said in its letter.

Pres. Trump’s simplistic answer to a complex problem

Pres. Trump’s response via Twitter says:

“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”

This is far from the first time the President has urged Apple to make the iPhone in America. However, that’s an attempt to solve a very complex problem with a simple answer. Despite the legend of the Gordian Knot, these generally don’t work, and it wouldn’t work for Apple.

First off, most of the components that make up an iPhone can only produced by companies in Asia. And this isn’t a case where Apple is forgoing an American product for a cheaper alternative. There are no good American alternatives.

The A-series processor can only be produced by a single company, Taiwan’s TSMC. Apple tried to source these chips from Intel as well, but the U.S. company wasn’t up to the job.

Only a handful of companies can produce the OLED displays used in the latest iPhones, and they’re all based in Asia.

And even if Apple imported these components to the U.S. and assembled them here, it would hardly make a difference in the U.S. trade deficit because Apple pays very little to assemble each iPhone. A recent study showed that the lion’s share of each iPhone sold goes to the United States. China makes just a tiny percentage, while far more goes to Japan, Taiwan, and S. Korea for supplying expensive components.

But the way the trade deficit is calculated doesn’t reflect this. When a newly-assembled iPhone is imported into the U.S., that’s the first time any of its components have entered this country, so the total cost is credited to the country doing the exporting, in this case China.

So if Apple took Pres. Trump’s suggestion and assembled its handsets in the U.S., it would have an effect on the trade deficit the U.S. has with China, but it would not affect the trade deficit the U.S. has with the world.