Apple is not the top seller of smartphones in the world — not even close. It does, however, have the vast majority of smartphone profits in the world with an estimated 90%. The margins on Apple’s hardware are so large that it can out earn OEMs that sell several times as many phones. There’s been a lot of talk about encouraging the manufacturing of electronics in the US with the incoming Trump administration, but is it even feasible to build an iPhone in the US? If Apple built them in the US, would that really create many jobs?
It is estimated that the iPhone 7 costs about $ 400 for Apple to produce. It sells for $ 649 in the US. A large chunk of the cost of making the phone has to do with getting components to the factories in China’s Zhengzhou region, a historically poor area that has been built up and perfectly tuned to churn out iPhones. This extreme specialization is one reason iPhone production would be very difficult to do cheaply in the US.
Analysts have pointed out that when you figure in the increased wages for a US-based assembly operation, the cost of building an iPhone might only rise by 5%. I think that’s an amount that many people would be willing to pay. However, that calculation ignores many of the logistical issues.
According to the New York Times, the Foxconn facilities in Zhengzhou can produce 500,000 iPhones per day. Foxconn has gotten to this point with the help of local government grants and subsidies totaling about $ 1.5 billion. The company has built huge facilities and employee dorms, and the government has added in infrastructure of its own. It laid down new roads and even built an airport just a few miles away from the factory to streamline the exporting process. It’s not unheard of for municipalities in the US to offer incentives to businesses that want to expand, but nothing on this scale. Apple has a sweet deal in China that it simply wouldn’t get in the US.
The next problem in moving iPhone production stateside comes in actually getting the components here. Currently, Apple has nearly 800 suppliers for iPhone components, and almost half of them are in China. The vast majority of the others are in Asian countries. The logistics of getting all those parts to the US would add great expense beyond simply paying workers more. These supply chains have been built from the ground up to serve a Chinese manufacturing machine.
Let’s just say that Apple decides to build a new factory in the US to assemble iPhones, and it somehow figures out how to do it without adding too much to the cost. It might not result in as many jobs as politicians would like to think. Even in China where labor is cheap, Foxconn is beginning to use robots to replace human workers. In the US, a new factory would undoubtedly be highly automated, limiting potential employment. Building iPhones in the US might sound nice, and it makes for good political rhetoric, but it’s not a silver bullet to create jobs. Smartphones has we know them were devised with Chinese manufacturing and Asian supply chains in mind. The cost of labor is only the first hurdle that would been to be cleared. Different US policies could bring some manufacturing jobs back, but automation is one of the major reasons those jobs don’t exist anymore — and no tariff policy or homegrown manufacturing initiative can easily change that.
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