Apple Won't Let Tariffs Push Them Out of China

Apple has a long history of sourcing its products out of China. Foxconn, a private electronics manufacturer in Taiwan, is Apple's longest-running partner. As global tensions rise, however, China may not seem like the best place to house production and manufacturing. Amidst Trump's trade war, rumors have been circulating that both Apple is exploring the possibility of moving production out of China. A hefty 25% tariff on 818 categories of Chinese imported goods have caused a $31 billion drop in Chinese imports as reported by Forbes. At this news, Apple allegedly requested its suppliers to begin projecting the cost of transitioning out of China. A new list of tariffs threatening China may push even more tech companies who depend on the country for cheap manufacturing to take production elsewhere. Supply Chain Dive states that Nintendo – one of Apple’s peers in the electronics industry - has already shifted some amount of production to Southeast Asia (though most production remains in China). But how will Apple react to the pressure? J.P. Morgan predicted that for Apple to swallow the cost of the new tariffs, they would need to increase prices by 14 percent. While it's unlikely Apple will transfer all extra costs onto their customers, the company will need to do something to manage these inflated fees. For now, it doesn’t sound like that something will involve relocation. The rumors swirling around Apple appear to have been premature. Supply Chain Dive reported last week that the CEO of Apple, Tim Cook, has dismissed them as speculation. In a call with shareholders, Cook also emphasized that Apple's suppliers are based in many areas besides China and that the supply chain is far from uni-lateral. Though Trump denied Apple's request to gain exemption from 15 different parts of the tariff, the company doesn't seem interested in compromising their diversified global supply chain. Seeing that Apple is a market-leading tech company, they have the flexibility to make creative decisions on how their supply chain works. Other businesses might not have as much leeway. According to CNBC, Tariffs Hurt the Heartland reported that Trump's tariffs cost US Businesses 3.4 billion in June alone. Despite these scary numbers, the Trump administration doesn't seem to be letting up, as he recently suggested the trade war with China could last until 2020.

Incoming tariffs have proven to shake up almost every market from food to denim to MacBooks. As endless industries feel the burn, companies will look to their procurement teams to help them understand what this means for their spending. Want to learn more? Check out Samuel Cagle’s recent blog on how tariffs impact the role of procurement.