Apple has found itself caught between China and the US

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Dressed in a sombre suit and tie, Apple CEO Tim Cook spent an afternoon in November 2019 showing US President Donald Trump around a large Texan manufacturing plant, where the tech giant plans to make its new MacBook Pro. At one point, Cook handed Trump a ceremonial silver plaque emblazoned with the words: “Mac Pro. Designed by Apple in California. Assembled in USA.”
The visit was designed to showcase Apple’s commitment to American manufacturing. But behind it lay a much larger question hanging over the company’s future: what to do about the vast majority of its products that still carry the words “Assembled in China”?


China is Apple’s largest market after the US and Europe, but has been its most important source of new growth for much of the last decade. This rapid expansion has tapered lately, as China’s own smartphone market matures and its economy slows, with iPhone sales declining over recent quarters.
Such is China’s importance to Apple that, in normal times, this sales reversal would have been Cook’s biggest strategic headache. But these are not normal times, and US-China trade tensions present a still greater dilemma over the future of its celebrated China-based manufacturing process, even after an initial deal between the two countries was signed in January 2020.
Apple’s supply chain is one of the company’s greatest assets: a complex, intricate web that draws components from all around the world to Chinese factories, where they are put together by outsourcers such as Foxconn and Pegatron (both of which are Taiwanese companies that have factories in mainland China). Cook knows the system well, given he designed it during his time as right hand to founder Steve Jobs.
“There’s a confusion about China,” Cook said a couple of years ago at the Fortune Global Forum in Guangzhou, pushing back against the notion that Apple assembles products there to save money. Instead, he argued, China’s deep tech ecosystem makes it the only country capable of providing the right mix of expertise, suppliers and labour at the scale Apple needs.


Even so, as US-China trade tensions have intensified, Apple’s reliance on China has become as much a source of weakness as strength. In the US, it risks being attacked by Trump for its reliance on China – hence the very public nature of Cook’s factory visit with Trump.
Meanwhile, China’s government always has the option of using Apple as a bargaining chip, especially if trade talks with the US break down once again, for instance by restricting access to the crucial rare earth metals needed for smartphone production. Trade ructions have hit Apple’s Chinese sales too, as patriotic consumers turn to domestic brands, giving a bump to Huawei in particular.
Apple’s role as an employer provides a measure of political protection: it says its activities “support” more than five million Chinese jobs, more than twice as many as in the US. Yet this did not stop it running into trouble with Beijing in October 2019, when it was pressured to remove the mapping app from its app store, following its use by protesters in Hong Kong.
The ongoing trade tensions are now forcing Apple to consider still more drastic scenarios, in particular what would happen if greater technological “decoupling” between the US and Chinese economies forced it to shift large portions of its supply chain away from China.


One short-term option could be to move smaller portions of production elsewhere. Its contract suppliers are opening factories in countries such as Indonesia and Vietnam. During 2019, the words “Assembled in India” also began to appear on iPhones.
But these moves have been small in scale, according to Dan Wang, Beijing-based tech analyst at research group Gavekal Dragonomics. So far, only a tiny fraction of Apple’s production is moving from China, largely because of the sheer logistical difficulty of moving facilities to smaller countries that are less well-suited to large-scale IT manufacturing.
“Apple has been hoping the trade war won’t worsen, letting it keep its supply chain mostly in China,” Wang says. “But if those tensions keep deteriorating, it will have hard decisions to make.”
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