Apple's China-centric supply chain, once its greatest asset is now a liability

Copyright © HT Digital Streams Limit all rights reserved. Rolfe Winkler, The Wall Street Journal 5 min Read 12 Apr 2025, 10:31 AM IT When President Trump set fire to a trade war last week, it was clear that Apple could be hit hardest. (Photo by Nicholas KAMM / AFP) (AFP) Summary The iPhone manufacturer, a pioneer of globalization that helped build the manufacturing economy of China, now has a sharp profit hit of rates. Aircraft filled with iPhones has been leaving Chennai Airport in southern India for months, one last attempt by Apple to delay a rates disaster. But the time is running out for the world’s largest company. The US and China are false and Apple is caught in the middle. When President Trump set fire to a trade war last week, it was clear that Apple could be hit hardest. Trump targeted China, where Apple overwhelmingly made its devices, and clapped the world’s second largest economy with 54% tariffs rising to 145% amid tit-by-tat retaliation. The lower figure has threatened to cut deep into Apple’s major profit margin of China-made devices sold in the US. The higher figure can destroy it. Like Nike and other top American brands, Apple has become a globalization pioneer working with China. A young CEO named Tim Cook recognized the potential of the country’s low -cost, hungry workforce. He built a Colossus offer chain there and became Apple’s CEO along the way. More than one million workers have carved out the latest devices on a close schedule. Their work is one of the strongest economic ties between the world’s two superpowers – one in which Apple is essentially one of the largest indirect employers, the other where it delivers the device most important to daily life. In both countries, Cook played properly politics to protect its creation, which made strategic investments in China to buy goodwill and work out a tariff release during Trump’s first term. Now Apple is trapped. The Chinese supply chain is so large and complicated, it cannot be easily moved. According to a person familiar with the matter, the company will study how it can move a little iPhone production to the US, but it will probably take years. Diversification of the final composition of its products to other low-cost countries, including India and Vietnam, can help Apple evade the impact of China tariffs, but it cannot compensate the dependence on US primary worldwide competitor, where many of the key parts will continue within the device. Cook said it would be difficult for Apple to make iPhones in the US, there is not enough labor, skilled and unskilled. If so, it would be too expensive. A full US iPhone can cost $ 3,500, Wedbush Securities suggested. Doug Guthrie, a professor at Arizona State University, took China 40 years to build a complex manufacturing supply chain, which previously worked on organizational development for Apple in China. “We had it earlier. It’s a disaster that we let it go. ” The company’s last, best hope of avoiding further markets unrest lies with Cook and its ability to ensure another tariff release, as he did during Trump’s first term. Trump has hinted that he will “harder” exemptions through rates. Yet it seems a temporary solution for what is a more lasting rift between the US and China. Without an exemption, US consumers are likely to pay more for their iPhones, iPads and Macs, or Apple’s substantial profit margins – and the returns for its general stock – will fall. Most likely both. A spokesman for Apple declined to comment. One reason why Apple is closely linked to China’s electronic supply chain is that the company helped build it. It started working with Chinese suppliers more than two decades ago, increasing production there in 2004, as a new hit product, the iPod, is rising. It had help from a friendly government, and Apple, in turn, trained trained suppliers to meet the demanding standards. ‘iPhone City’ over time has helped Apple build an ecosystem of more than 1,000 suppliers in China. The iPhone manufacturer has taught them how to work more efficiently, so they compete with each other and lowered Apple’s costs, Guthrie said. Apple -made partner Foxconn has built a connection in Zhengzhou that it is known as ‘iPhone City’. The combination of low cost with premium price equipment means that Apple’s profits for all smartphone production worldwide can deliver 80%, even if the shipping of devices under 20%, according to Counterpoint Research. Other countries do not offer the same promise as a manufacturing center, Guthrie found when studying alternatives to Apple. India has many workers, but bureaucracy can make it more difficult to move quickly. Apple providers in India focused on two South Indian states that have more streamlined processes. Apple provider Foxconn has its most important factories in India near Chennai. Indian officials hope the new rates on China will help the country to tackle the Apple supply chain outside the final meeting. But such an effort will take years. When Stephan Kruger worked in Apple’s supply chain from 2014 to 2018, he saw the benefits of Chinese production firsthand. At one point, he helped the suppliers to set up the production of the iPhone’s “taptic engine” – the part that simulates clicks, vibrations and other tangible feedback. In the early part of the year, he worked with suppliers to get machines in place, test it and refine the production process, so Apple was ready to increase production later in the summer, before the annual iPhone event in September. No step in the process could match in the US. Those workers also train the workers with a low skill in the production process. Cook and China “The US stopped having so many professional skills over time,” Cook told CBS’s “60 minutes” in 2015. ‘You can take every instrument and manufacturer in the United States and probably put it in a room we are currently sitting. In China you will need to have several soccer fields. ‘ But it is also the workers with a low skill that Apple needs. In China, not only is a large offer available, but under the country’s mobile labor system they only work for a few months. This army deployed to help Apple increase the production volumes before the US holiday period, and then withdraw as volumes drop, which limits Apple’s costs. Workers at a Foxconn Training Course in Zhengzhou. Not long after Cook Steve Jobs followed up at Apple’s Helm, some criticized low-key Alabama native for his inability to follow up Jobs’ iPhone with his own block. The assumption was that the growth of the iPhone would delay. Little appreciate how Cook’s supply chain gene matches Jobs’ product genius. Cook wrapped the blockage with supplementary products and services and delivered large revenue growth. Last year, Apple sold 233 million iPhones, of 93 million the year that Cook has become CEO, according to IDC. In December, the company’s market cap had a highlight of nearly $ 4 billion, and it was the largest part of the last decade in the world’s largest company. Cook has previously saved his supply chain of political threats. In China, Apple has made strategic investments, including research and development centers to approve the favor of government officials. It could also continue with production in China despite the country’s strict Covid era closures. Write to Rolfe Winkler on [email protected], catch all the corporate news and updates on Live Mint. Download the Mint News app to get daily market updates and live business news. More Topics #Apple iPhone Mint Specials