What if iPhone is built in the US due to high tariff is charged for imports?
Would many of US residents/individuals travel to Canada or Mexico buying much cheaper phones (including iPhone if there is an offshore production version for international markets like Canada and Mexico) that are made in China/Korea? Causing significant outflow of US monies!
I was thinking about the same thing. The only way low-end US workers can compete with cheaper foreign labors is to rise the price through tariff on imports. Which makes consumers unhappy.
I was thinking about the same thing. The only way low-end US workers can compete with cheaper foreign labors is to rise the price through tariff on imports. Which makes consumers unhappy.
Or you automate out the workers and bring the manufacturing (i.e. Revenue base back).
Instead of $3/hour Chinese labor we will have $0/hour American labor. And consumers will still have higher prices because there will be less competition.
Thats what's going to happen. Americas manufacturing base has been decimated and the fixed capex and technical know how to make a lot of stuff has retired or passed this world. It will take over a generation for America to build up the infrastructure to bring prices down once the tariffs go up.
What if iPhone is built in the US due to high tariff is charged for imports?
Would many of US residents/individuals travel to Canada or Mexico buying much cheaper phones (including iPhone if there is an offshore production version for international markets like Canada and Mexico) that are made in China/Korea? Causing significant outflow of US monies!
iPhone will lose 2/3 of its valuation because of economies of scale. Majority of iphones is sold in other countries. Once US impose high tariff on imports, other nations will also do the same to imports from US, which make iPhone impossible to sell in other nations. Massive production drives the cost down. When iPhone lose majority sales, cost per unit will drastically increases even with automaton because it won't be able to produce as much as before. Probably iPhone will cost twice as now. I doubt average consumers in US will be able to afford it.
I am wondering whether Apple would still keep producing its products by the existing contract manufacturers, who already own most manufacturing know-hows of portable phones, by asking them to invest capital-intensive automation plants and move the production to the US from China/Vietnam.
In return, the CMs would have to negotiate an incentive/subsidy significantly from the US government for the change. As the US facilities then would produce not only iPhone but also other phones for the US market.
Many moving parts! And dynamics! While Canada and Mexico are selling competing products made in China/Vietnam with relatively low price tags! Due to many supply chain exposures for many of the electronic components that are currently made in China/Korea/Taiwan! That would have to be air-transported by different suppliers - for incurring airfreight costs that might not be required if both its component and finished product are produced in the same country.
Protectionism
In an international context, establishing a foreign subsidiary as a contract manufacturer can have favorable tax benefits for the parent company, allowing them to reduce overall tax liabilities and increase profits, depending upon the activities of the contract manufacturer. This is a form of protectionism.
The iPad and iPhone, which are products from Apple Inc., are manufactured in China by Foxconn. Hence, Foxconn is a contract manufacturer and Apple benefits from a lower cost of manufacturing devices.[3]
A contract manufacturer ("CM") is a manufacturer that contracts with a firm for components or products. It is a form of outsourcing. In the food business a contract manufacturer is called copacker.
Contents
1 Business model
2 Industries that use the practice
3 Purpose, benefits, and risks
3.1 Benefits
3.2 Risks
4 Protectionism
5 References
6 See also
7 External links
Business model
An advertisement for contract manufacturing services, in Popular Mechanics, 1905.
In a contract manufacturing business model, the hiring firm approaches the contract manufacturer with a design or formula. The contract manufacturer will quote the parts based on processes, labor, tooling, and material costs. Typically a hiring firm will request quotes from multiple CMs. After the bidding process is complete, the hiring firm will select a source, and then, for the agreed-upon price, the CM acts as the hiring firm's factory, producing and shipping units of the design on behalf of the hiring firm.
Job production is, in essence, manufacturing on a contract basis, and thus it forms a subset of the larger field of contract manufacturing. But the latter field also includes, in addition to jobbing, a higher level of outsourcing in which a product-line-owning company entrusts its entire production to a contractor, rather than just outsourcing parts of it.
Industries that use the practice
Many industries use this process, especially the aerospace, defense, computer, semiconductor, energy, medical, food manufacturing, personal care, and automotive fields. Some types of contract manufacturing include CNC machining, complex assembly, aluminum die casting, grinding, broaching, gears, and forging. The pharmaceutical industry use this process with CMs called Contract manufacturing organizations.
Purpose, benefits, and risks
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There are many benefits as well as risks to contract manufacturing. Companies are finding many reasons why they should outsource their production to other companies. However, production outside of the company has many risks attached. Companies must first identify their core competencies before deciding about contract manufacturers. A company's competencies are what make them competitive in the marketplace. If a company allows another company to take control of them, it loses that advantage.
When deciding about contract manufacture, the company should weigh the benefits and associated risks. For small companies, contract manufacturing may not be a good business strategy. For large companies that are trying to extend into new markets, contract manufacturing may be a good choice.
Benefits
Cost savings – Companies save on their cost of capital because they do not have to pay for a facility and the equipment needed for production. They can also save on labor costs such as wages, training and benefits. Some companies may look to contract manufacture in low-cost countries, such as India, to benefit from the low cost of labor.[1]
Mutual benefit to contract site – A contract between the manufacturer and the company it’s producing for may last several years. The manufacturer will know that it will have a steady flow of business until then.[1]
Advanced skills – Companies can take advantage of skills that they may not possess, but the contract manufacturer does. The contract manufacturer is likely to have relationships formed with raw material suppliers or methods of efficiency within their production.[2]
Quality – Contract manufacturers are likely to have their own methods of quality control in place that helps them to detect counterfeit or damaged materials early.
Focus – Companies can focus on their core competencies better if they can hand off base production to an outside company.[2]
Economies of scale – Contract manufacturers have multiple customers that they produce for. Because they are servicing multiple customers, they can offer reduced costs in acquiring raw materials by benefiting from economies of scale. The more units there are in one shipment, the less expensive the price per unit will be.[2]
Risks
Lack of Control – When a company signs the contract allowing another company to produce their product, they lose a significant amount of control over that product. They can only suggest strategies to the contract manufacturer; they cannot force them to implement them.
Relationships - It is imperative that the company forms a good relationship with its contract manufacturer. The company must keep in mind that the manufacturer has other customers. They cannot force them to produce their product before a competitor’s. Most companies mitigate this risk by working cohesively with the manufacturer and awarding good performance with additional business.
Quality concerns – When entering into a contract, companies must make sure that the manufacturer’s standards are congruent with their own. They should evaluate the methods in which they test products to make sure they are of good quality. The company has to rely on the contract manufacturer for having good suppliers that also meet these standards.
Intellectual property loss – When entering into a contract, a company is divulging their formulas or technologies. This is why it is important that a company not give out any of its core competencies to contract manufacturers. It is very easy for an employee to download such information from a computer and steal it.
Outsourcing risks – Although outsourcing to low-cost countries has become very popular, it does bring along risks such as language barriers, cultural differences and long lead times.[2] This could make the management of contract manufacturers more difficult, expensive and time-consuming.
Capacity constraints – If a company does not make up a large portion of the contract manufacturer’s business, they may find that they are de-prioritized over other companies during high production periods. Thus, they may not obtain the product they need when they need it.
Loss of flexibility and responsiveness – Without direct control over the manufacturing facility, the company will lose some of its ability to respond to disruptions in the supply chain. It may also hurt their ability to respond to demand fluctuations, risking their customer service levels.
If corporate tax rate is dropped from 35% to 15%, that would mean a $900 iphone has been given $180 discount. Not sure what it actually costs to make a phone, but I don't see Apple paying China $180 per phone, plus other cost like transportation, foreign taxes and so on.
IMO, the cost to the U.S. consumer will remain the same, with a possibility of a small decrease. This is just a pro forma estimate, entertainment only.
This whole Trump U.S. nationalism has made the old cost comparisons obsolete. We have become the victims of our own outsourcing. Now we can no longer afford to make anything. We have become charity cases dependent on multi national corporations.
If you bring in the iPhone made out of the country, are you going to hook up to an out of the country cell phone service as in country will know where the phone was made and your monthly bill might reflect an extra heavy tax of using out of the country product, LOL.
Doubt the tariffs will go up, but can see one day paying 100% or more tax at register with various counties where USA has imbalance of trade which is almost every country in the world?
Can you see paying $900 for a China made toaster? Do you think companies at that point start bringing back plants to make toasters?
Then you have to impose high tariffs on all competitors to keep the iPhone even remotely competitive. In markets where you have plenty of choice (Asian countries) iPhone is losing ground fast because there are $250 alternatives which do the same and more (iPhone's battery is pathetic).
Then you have these countries imposing tariffs on US products or making business harder for US companies. US car makers in China will be the losers here.
Interestingly, as Europeans were bringing dozens of iPhones from US years ago (myself included - there was a 100% profit when selling one in Europe), the tables might turn and Americans will fly to Europe to escape the tariffs.
