On November 20, Donald Trump said he is considering granting a tariff exemption on Chinese imports to Apple Inc (AAPL). The businessman turned politician made these remarks after visiting the electronics giant’s manufacturing facility in Texas.
Trump’s consideration in detail
On Wednesday, the US president visited Apple’s assembly plant in Texas. He wanted to take a look at the plant that makes the Mac Pro desktop computer, a high-end model ranging from $6000 since 2013. There, he expressed his thoughts of considering to leave out Apple from charging the new tariffs on Chinese products.
He said, “When you build in the United States you don’t have to worry about tariffs.” Further, as per Trump, this concession may happen if the trade war pressure with China continues to develop in December. He firmly believes that the ongoing trade war tension is due to Beijing’s failure to come up with a bargain.
A win-win situation for Apple and Trump
Trump is acting in favor of the tech giant Apple. In fact, Apple got 10 exemptions of the 15 applications in September 2019, proving Trump’s bias towards Apple. There are two main reasons for this partiality towards the iPhone manufacturer.
One is that Trump wants to grant Apple fair chances to operate with its main competitor, Samsung. His exacts words were “The problem we have is you have Samsung — its a great company but its a competitor of Apple and its not fair if — because we have a trade deal with Korea, we made a great trade deal with South Korea, but we have to treat Apple on a somewhat similar basis as we treat Samsung.”
The second reason is from a political front. Trump is constantly talking about improving the US economy in his election campaigns. Of this, increasing employment opportunities is a crucial factor for Trump. For that matter, the Trump administration in part provided for nearly 443,000 manufacturing jobs since January 2017. This is despite the job cuts that prevailed, claiming nearly 41,000 positions over the last two months. In this context, the manufacture of Apple’s Mac Pro involves the usage of various components from 36 states, which assists in building 450,000 jobs with US suppliers.
Apple’s transition from Chinese to US manufacturing
In 2018, Apple built in China more than 50% of the 218 million iPhones sold. Usually, Apple doesn’t reveal its sales by product line. However, it looks like Mac sales volume contributes to the lowest among its various other computer products. Further, it is the sole Apple product to be made in the US. When the company announced the launch of a new Mac Pro design in June, it didn’t give out the exact location.
However, the Wall Street Journal reported China as its assembly location. Later, the company expressed its idea to make them in Texas in the US after it obtained a majority of exemptions in September. The Mac Pro will be available for sale in December. In addition, Apple mentioned that it will start building a campus in Austin. This facility should give employment to about 15,000 employees.
Apple gets the advantage, but what about its peers?
Apple mostly depends on China for the production of components for its various products, including iPhones and iPads. Moreover, it gets about 20% of its total from Greater China. So, Apple is definitely a gainer in case of tariff exemption. Now, let’s take a look at its peers.
Initially, in late June 2019, reputed tech companies, including Dell Technologies (DELL), Microsoft (MSFT) and HP Enterprise Inc (HP), strongly resisted the suggested tariffs. Moreover, they warned of a price increase on all their products. However, Microsoft and Google (GOOGL) proved to be tariff-resistant companies as both of them made some smart moves.
Google shifted its hardware production facility from China to other countries, while Microsoft switched its interest from hardware to software. Similar to Google, DELL and HP plan to shift at least 30% of their laptop production hub from China to elsewhere in July 2019.
Apple still faces Trump’s tariff decision
As per Bloomberg Economics, the ongoing trade war may lead to a $1.2 trillion loss of output for the global economy by 2021. Let’s wait and watch how the events turn up for Apple and its peers after Trump’s tariff decision in December.