What impact will the return of iPhone production to the United States have on Chinese mobile phone companies?

Not long ago, the newly elected President of the United States, Trump, said in a recent interview with the New York Times that he received a call from Apple CEO Cook and Microsoft founder Bill Gates after winning the election. During the call with Cook, Trump talked about how it would be "a big achievement" if Apple manufactured products in the country.

Originally, Trump was just talking and did not attract much attention. However, shortly after his speech, Bloomberg columnist Tim Culpan wrote a column in the tone of Terry Gou, satirizing Trump's ideas.

But Trump did not stop there. He first spoke with Tsai Ing-wen on the phone, and then said that China needs to pay for the "One China" principle, which shocked the whole world, so much so that the White House quickly came out to clarify.

Judging from Trump’s statement, he has already treated China as an object of blackmail. Moving manufacturing back to the United States is not just talk; his desire is sincere.

So, can the iPhone really return to the United States? If the iPhone really returns to the United States, what will it bring to the mobile phone industry?

1. How much more would it cost to return iPhone production to the United States?

In fact, the issue of iPhone returning to the United States was discussed as early as the Obama era. "MIT Technology Review" discussed three options in June this year: one is that the world provides raw materials, the world produces components, and the United States assembles them; the second is that the world provides raw materials, the United States produces components, and the United States assembles them; the third is that the United States provides raw materials, the United States produces components, and the United States assembles them.

If the first option is adopted, Apple will need to pay more for transportation and labor costs. This is because the components of the iPhone are mainly concentrated in Asia. The iPhone screen is from Japan and South Korea, the chips are from South Korea and Taiwan, the lens is from Taiwan, the memory chip is from Japan and South Korea, the camera module is from Taiwan and the mainland...

Returning to the United States for manufacturing means extending the transportation distance of these components, which need to be shipped from Asia to North America, thus paying more logistics costs;

At the same time, due to more labor costs, the labor costs in the United States are higher, so more workers need to be paid when assembling iPhones in the United States.

According to estimates, the first option would cost at least $30-40 more to produce an iPhone, which is the lowest of the three options.

If the second option is adopted, namely "global supply of raw materials, production of components in the United States, and assembly in the United States", in addition to paying the additional logistics costs and labor costs, it is also necessary to pay the costs of building the production line.

Take semiconductor chips as an example. In addition to the core processor, an iPhone also needs baseband chips, sensors, NFC controllers, touch screen drivers, RF amplifiers and receivers, etc. These chips are provided by manufacturers such as Qualcomm, Texas Instruments, and ENHP, whose factories are located in China, South Korea, and Japan.

If the second option is adopted, it means that the factories of these chip manufacturers will have to move back to the United States. To do this, they will need a large amount of industrial equipment to build a complete semiconductor production line, with an overall investment of billions of dollars.

After the production line is completed, it is not a one-time thing. They will become obsolete a few years after they are built, so they need to be continuously maintained and updated in the meantime. This means a lot of costs. These costs will eventually be included in the iPhone. If the second option is adopted, the price of the iPhone will increase by 60-100 US dollars.

As for the third option - "the United States provides raw materials, the United States produces components, and the United States assembles", the United States simply cannot do it in today's globalized world. Starting from mineral products and step by step to costs, there are too many things to move.

Therefore, according to optimistic estimates, the price of iPhone will increase by $30 to $100 when it returns to the United States.

2. It’s not just about money

If it is just an increase in costs, then it is possible for Trump to make up for it by giving Apple a substantial tax cut (in fact, the effectiveness of this tax cut itself is very questionable, because Apple is a master at tax evasion and the money does not return to the United States).

But iPhone manufacturing is more than just about money.

Cook said in an interview with the US media that China attaches great importance to manufacturing, which is what we call vocational skills. The US stopped cultivating so many types of jobs a long time ago. If all American machine workers and mold workers were gathered together, this room would be full. What about China? I'm afraid it would take several football fields.

In fact, the number of Chinese workers is much larger than several football fields. There are 20,000 people in one mold city in China, several mold cities in one mold base, and n mold bases in one province. The number of employees can support a city.

Unless the United States opens up immigration and labor imports on a large scale, Apple will not be able to find enough workers even if it moves back. You can give money, but you can't just give people away.

It takes at least several years to train a person to become a skilled worker, and this requires that basic education is sound, but the basic education in the United States is problematic. Community divisions make it difficult to guarantee the quality of education at the bottom, and it is very difficult to transform street gang members into skilled workers.

In addition to quantity, the efficiency gap is even greater. A former Apple executive once described it to the New York Times: "Apple changed the iPhone screen design at the last minute, causing the entire assembly line to need to be modified. The new screen panel arrived at the factory at midnight. A foreman immediately gathered 8,000 workers in the company's dormitory, gave each person a biscuit and a cup of tea, and took their positions within half an hour to start a 12-hour work shift. They embedded each new screen into the panel. In just 96 hours, the factory's output reached 10,000 iPhones per day. Their (Chinese workers) speed and flexibility are incredible, and no American factory can match them."

Today's American workers simply cannot afford the high-intensity labor of Chinese workers. Even if they can afford it, the cost is not something that can be solved by a mobile phone of 30 to 100 US dollars.

100 years ago, there were workers in the United States who ate lunch on steel beams more than 100 meters in the air. But with today's welfare, Americans cannot accept the intensity of labor at Foxconn in China.

If all these costs are finally added to the product, some people have estimated that the cost of the iPhone will not increase by $100, but will double to $400-500, and the transition time will also be very long.

So it is very, very difficult for the iPhone to return to the United States.

3. Impact of the Sino-US trade war on Chinese mobile phone manufacturers

If the iPhone can be manufactured in the United States again at a huge cost, there will only be one situation: the Sino-US trade war breaks out, the United States imposes super-high tariffs on China, and at the same time gives Apple high subsidies and tax cuts in the United States, making the cost of Apple manufacturing in China higher than the cost.

If this happens, the impact will not only be on Apple, but all Chinese mobile phone manufacturers. During his campaign, Trump threatened to impose tariffs of up to 45% on products imported from China. If this policy is really implemented, it will obviously be very bad for Chinese companies.

However, unlike textile manufacturers, Chinese mobile phone manufacturers have a very small share of the US domestic market. Even under the current tariff rates, Chinese mobile phone manufacturers have not entered the top five in the US smartphone market.

Therefore, the Sino-US trade war does not pose much direct threat to Chinese mobile phone manufacturers.

However, we need to see that China does not only have mobile phone manufacturers, but also many export-oriented enterprises, and most of their employees use domestic mobile phones. If a trade war breaks out between China and the United States, high US tariffs will mean that these companies will see a decrease in orders, lower wages for workers, and reduced spending power.

The real threat is that the domestic market will be damaged in the Sino-US trade war.

In addition, the US trade war will inevitably trigger retaliation from China. In the mobile phone industry, Qualcomm will be the first to be affected, and its chips will also be subject to high tariffs. This means rising costs for many Chinese mobile phone companies.

Rising costs and shrinking markets are undoubtedly bad news. Although the direct impact of the Sino-US trade war is not significant, the indirect impact is something that Chinese mobile phone manufacturers cannot ignore.

So, how do Chinese manufacturers deal with this problem?

We must see that American consumers have become accustomed to cheap goods. When Chinese goods are no longer cheap due to tariffs, these consumers will inevitably have to supplement their needs through imports from other third world countries, which means that the purchasing power of countries such as Vietnam and India will increase.

Therefore, the way out for Chinese mobile phone manufacturers is to speed up the internationalization process, not put all their eggs in one basket, and accelerate the development of overseas markets.

Although many third world countries are quite unreliable (such as India's demonetization policy), the future market is there and we have no way out.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.