FILE - In this April 30, 2015 file photo, Apple CEO Tim Cook responds to a question during a news conference at IBM Watson headquarters, in New York. Cook is getting an award from the Human Rights Campaign, an advocacy group for gay, lesbian, bisexual and transgender rights. The award is to be presented to Cook on Saturday, Oct. 3, 2015. (AP Photo/Richard Drew, File)

A Measure of How Destructive Trump’s Tariffs Would Be

The New York Times has a fascinating in depth piece on the iPhone factory in China. My guess is that this piece has a lot to do with building the case against Trump’s tariffs. If not, it should. Because it shows just how economically devastating Trump’s tariffs and the subsequent trade war would be.

China’s lure is strong. Dell, Hewlett-Packard and Samsung have all flocked to China to lower their production costs, bolster their bottom lines and tap into the world’s largest consumer market. And many rely on local manufacturing partners like Foxconn.

While Apple came later than many technology companies, it now generates nearly a quarter of its revenues from sales in China and has some of the fattest profit margins in the business. As such, the Zhengzhou operation provides an especially illustrative look at China’s importance to American technology companies — and specifically iPhone production and more recently, Apple’s consumer sales.

Dell, HP, and Apple all do extensive production in China, which keeps the costs of products low. Apple decided to build its Mac Pro in the United States and I don’t think it is a coincidence that Apple hasn’t upgraded that product in three years. It is cost prohibitive to make that computer in the United States in order to sell it at a competitive price point.

Apple, like many multinationals, depends on a vast global supply chain that includes multiple companies and countries, each with its own expertise and advantages — a complexity that is often lost in the political debate over trade. The iPhone is a collection of intricate parts that are made around the world and assembled in China, spurring employment in many countries; Apple says it supports two million jobs in the United States.

If Trump imposes his 5% or 10% tariff, that right there will escalate the costs of technology in the United States for individuals and drive up costs for businesses. But that’s just getting started. There would then be retaliation from other countries, which would drive the costs up even further.

Say hello to the Trump recession. There’s a reason no mainstream economist on the left or right supports tariffs in trade policy.

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Erick Erickson

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