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Keep iPhone Production in China

September 22, 2018 in Economics

By Colin Grabow

Colin Grabow

As President Trump’s trade policy careens along, it’s clear that
a key goal is prodding U.S.-based firms to shift foreign production
to the United States. The revised NAFTA agreement’s mandate that a
certain percentage of auto parts be produced by workers earning at
least $16 per hour, for example, is clearly designed to shift such
work away from Mexico. The president has also sent tweets encouraging Ford and Apple to escape the impact of tariffs on
China by making their products domestically.

Using tariffs to shift work back to the United States, however,
would be penny wise and pound foolish.

If Apple assembles its iPhones in China or an automaker uses
workers in Mexico to produce parts or finished cars, they do so for
a very good reason: It’s the most cost-effective option. Using
tariffs and other measures to drive production to the United States
does little more than artificially raise expenses. It’s the
equivalent of the government requiring holes to be dug with spoons
instead of excavators.

Let’s imagine what would happen if, due to rising tariffs, Apple
decided to end the production of iPhones in China and move
production in the United States. True enough, jobs would be
created, but at substantial cost. Before a single iPhone could be
made, billions would have to be devoted to building new factories.
Further billions would have to be spent attracting workers in a
low-unemployment economy with much higher wages than those found in
China. Time would be needed to train these workers as well as
develop the associated ecosystem of suppliers.

So how would these expenses be paid for? Likely in a variety of
ways. One option might be to raise prices. Indeed, some analysts estimate the likely retail price of a
U.S.-built iPhone to be at least double that of one made in China.
But that means reduced sales and higher barriers for consumers to
acquire one of the great conveniences of modern life. Fewer
purchases of iPhones would also filter through the rest of the
economy, harming other firms such as those that design apps or
others who use them to deliver services.

Another option would be for Apple to reduce its expenditures on
areas such as research and development or marketing. In addition to
placing the company at a competitive disadvantage and reducing the
quality of its offerings — another harm to consumers —
such a move would likely translate into fewer high-paying jobs at
Apple’s U.S. headquarters. Indeed, for all of the talk about iPhone
assembly jobs overseas, often forgotten is that the company …read more

Source: OP-EDS

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