Dive Brief:
- Apple CEO Tim Cook dismissed the possibility of moving production away from China and exploring alternative markets on the tech giant's second quarter earnings call.
- Cook said Apple already has a diversified sourcing base. "The vast majority of our products are kind of made everywhere. There's a significant level of content from the United States and a lot from Japan to Korea to China and the European Union," he said on the call. "That's the nature of a global supply chain."
- Earlier this month, the Trump administration denied Apple's request for a tariff exclusion on 15 parts, including ones for the Mac Pro desktop computer, with President Donald Trump tweeting " Make them in the USA, no Tariffs!" On the call, Cook said Apple makes the Mac Pro in the U.S., and the exclusion is for imported parts for production.
Dive Insight:
Cook's comments this week on the earnings call come in contrast to earlier reports of the tech giant's consideration of shifting some production away from China to nations in Southeast Asia. Apple even reportedly asked suppliers to model the cost of moving 15%-30% of its production capacity outside of China.
Both of these reports, however, came at a time when it seemed likely the fourth tranche of tariffs, on $300 billion worth of Chinese imports, would take effect. Since then, the threat has fizzled, although the jitters may return as Trump has expressed low expectations surrounding ongoing U.S.-China trade negotiations.
The tariffs have driven businesses across numerous industries, from electronics to fashion, to make plans to reduce sourcing from China and move production where possible. The Chinese market still dominates many industries and has the existing infrastructure for large-scale production capacity, making it difficult in the short- and medium-term for companies to plan a full exit strategy from the country.
A supply chain as diversified and global as Apple's can help with risk mitigation, but that doesn't mean China tariffs, current and proposed, won't deal a blow to the business. Last month, J.P. Morgan analysts noted Apple would need to raise prices by 14% to keep margins the same, although they added Apple is unlikely to pass the full amount onto consumers, resulting in the tech giant absorbing some of the costs.
While Apple doesn't have plans to significantly move China production, Cook renewed calls for an exclusion on imported parts to make manufacturing in the U.S. sustainable. "We want to continue to be here," he said on the earnings call, in reference to Mac Pro production in the U.S. "That's what's behind the exclusions. And so, we're explaining that and hope for a positive outcome."
