Apple’s tech supply chain shows difficulties in cutting dependence on China
Chinese vendors account for nearly half of global smartphone shipments, the region has a well-developed supply chain, which will be tough to replicat and one Apple could lose access to if it moves American companies have had a growing list of reasons to downgrade their ties with China in recent years. Former President Donald Trump’s tariffs. Beijing’s stringent Covid lockdowns. The US-Sino standoff over Taiwan. Political pressure to “friend-shore” supply chains toward nations aligned with Washington. But breaking up, as the adage goes, is hard to do. That conclusion is evident from a Bloomberg Intelligence analysis of Apple Inc., which is trying to reduce its dependence on China . The Cupertino, California-based company company already started producing some iPhone 14 models in India, in an earlier than usual move for new models. And Apple’s largest supplier, Foxconn Technology Group, recently agreed to a $300 million expansion of its production facilities in Vietnam. Read BI’s Report: Untangling US- China Technology Supply Chain Hard, Not Impossible But Bloomberg Intelligence estimates it would take about eight years to move just 10% of Apple’s production capacity out of China, where roughly 98% of the company’s iPhones have been made. Scores of local component suppliers — not to mention modern and efficient transport, communication and electricity supplies — make it particularly difficult to get out of the world’s second-largest economy. “With China accounting for 70% of global smartphone manufacturing and leading Chinese vendors accounting for nearly half of global shipments, the region has a well-developed supply chain, which will be tough to replicate — and one Apple could lose access to if it moves,” BI’s report from analysts Steven Tseng and Woo Jin Ho said. An Apple spokesperson did not respond to a request for comment. It’s one thing to look outside China for other makers of toys and t-shirts. But US technology firms invested more than two decades, and tens of billions of dollars, setting up complex production chains to provide essential goods for the e-commerce boom. Unwinding those ties could end up taking just as long, and may result in lasting damage to an already battered global economy. Of course, unanticipated events — like Europe and America’s rupture with Russia — provide a potent reminder of both the systemic risks of deep economic integration and the speed at which decoupling can occur. Political headwinds in the US have been steadily leaning against US-Chinese integration. Under President Joe Biden, the $615 billion US-China trade relationship has simmered into a cold war following the commercial tensions under Trump that resulted in tariffs on a collective $360 billion worth of bilateral goods, along with US sanctions on key Chinese technology manufacturers like Huawei Technologies Co Ltd. The pandemic then ushered in President Xi Jinping’s strict virus-containment policies, which essentially barred travel and has left major areas locked down for extended periods of time. Rising tensions over US ties with Taiwan and China’s unprecedented scale of military exercises in the Taiwan Strait have become the latest flashpoint offering a case for decoupling. “There was some momentum in this direction as a consequence of the trade war and the pandemic,” Scott Kennedy, a senior adviser at the Washington-based Center for Strategic and International Studies, said about decoupling. “The Shanghai lockdown was really a monster accelerant. And the cross-strait crisis in early August added more fuel to the fire.” Yet the Biden administration’s reshoring strategy — or “friend-shoring” as termed by US Treasury Secretary Janet Yellen — remains a lofty but unfulfilled ambition, as far as the data go. US firms had $90 billion directly invested in China at the end of 2020, and despite all the talk of decoupling, added another $2.5 billion in 2021, according to data compiled by China’s commerce ministry. The actual total is likely even higher, because some businesses are thought by analysts to route some investments through Hong Kong, or via tax havens like the Cayman and Virgin Islands. US tech supply chains in China rely on firms from Taiwan and elsewhere as well as domestic Chinese firms, increasing the level of dependence further. Friendshoring Reticence Furthermore, America’s allies aren’t exactly swayed by Yellen’s “friend-shoring” concept. Key US partners like Singapore warned the Biden administration that isolating China could destabilize the global economy and potentially “sleepwalk” the world’s largest economies into a dangerous conflict. “Such actions shut off avenues for regional growth and cooperation, deepen divisions between countries and may precipitate the very conflicts that we all hope to avoid,” Singapore’s Prime […]
