Realist, not conformist analysis of the latest financial, business and political news

Trump’s Very Silly Idea Of A 10% Tariff On Apple’s iPhones

This is one of these ideas that the ill-informed do keep bringing up – let’s have a tariff on Apple’s iPhones so that the electronics giant makes them in the United States. The problem with this being that Apple already does, to any reasonable definition, make the iPhone in the US. Thus President Trump’s latest musing on the idea is very silly indeed.

To understand this we need to grasp the difference between “make” and “assemble”. Apple, to any realistic definition, does the making in the US today and the assembling in China. Which is just what we’d like to be happening too, as the assembling is s**tty, poorly paid, work and the making is the lovely high pay stuff that we want to be doing ourselves. That is, we’re already in that best of all worlds:

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] Apple shares fell in Tuesday trading, a day after President Donald Trump suggested the U.S. could place a 10 percent tariff on iPhones and laptops made in China. Trump told The Wall Street Journal that “people could stand” that tariff rate “very easily.” [/perfectpullquote]

No doubt people could stand that tax rate. But to what end would we impose it? What’s the point of doing it that is?

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]”Maybe. Maybe. Depends on what the rate is,” the president said to The Wall Street Journal about the possible iPhone and laptop tariffs. “I mean, I can make it 10 percent, and people could stand that very easily.”[/perfectpullquote]

Trump’s declared aim here is that people should make stuff in the US, not in China. He’s even directly said that Apple should be making things in the US. Which is where our difference between make and assembly is so important.

What are we going to use as our definition of make? To an economist there’s an easy answer – who ends up with the money? That’s a good if not perfect guide to where the value is being added, the very thing which we take to mean that “make”.

How much does China get? About $10 per iPhone handset, something like that. Because what China does in this process is stick the bits together – assembly. Sure, that’s got a colloquial meaning of make but it’s not the important thing.

Consider, for a moment, jet planes. Boeing makes the wings and fuselage, Rolls Royce the engines. Would we say that plane is “made” when we bolt the engines onto the plane? No, obviously not, the RR engines are made in England, the Boeing planes Seattle. And that the two get bolted together on some airfield somewhere doesn’t change that insistence upon where the value is added, where the things are made.

So it is with the iPhone. The processing chips are made in Austin TX if Samsung is making them, by TMC wherever for their share. The screens are Japan or Taiwan. The design is entirely Cupertino in CA. And those are the three expensive bits in the system. Well, except for the profit margin and that too is added in Cupertino. A rough guide, a very rough one, is that 60 to 70% of the “making” of the iPhone is in those four things, the design, chip, screen and profit. None of which is happening in China. They’re still only getting that $10 per box.

So, to move iPhone manufacturing to the US, what’s the point? We’d still be using the same screens and chips, importing those not already made in the US. The profit margin would still be added in CA. The only thing we’d have moved is that $10. And seriously, who cares about that?

It’s even possible to say it would make us all poorer. The usual wage for electronics assembly in the US is $13 an hour or so. About half the median wage for the country. We’ve not really got any unemployed people around at present so to find Apple’s workforce we’d be pulling people off doing other stuff. Deliberately creating jobs at half average wage, diverting labour to those lower than average occupations, isn’t a known way of making a place richer.

No, sorry, this is another one of those silly ideas about trade from Trump. We simply don’t want to put tariffs upon Apple’s iPhones just because there’s no benefit to doing so.

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