Trump's new offshoring tax will change how the iPhone is built!
Published on December 17, 2016
Every time a new iPhone comes out, tech and style feeds explode with stories about new first opinions and new tech features. Well, I don't want to comment on the features of the iPhone 8, but one of the most interesting features of the iPhone 9 will be where it's manufactured. Outsourcing is a hot issue for the Trump Presidency, and products like the Phone that are manufactured offshore will be targeted by trump for penalties. How will this affect your next phone? Let's take a look!
Of the top 10 smartphone manufacturers, only Apple is still US based. The rest are all from brands that are headquartered in Asia. All of the top phones cost about the same, around $700 for an unlocked phone without a contract. The Trump plan (so far) is to tax American products that are built, or assembled, or worked on offshore. Trump believes that a 35% tax on these products will make phone manufacturers build these products once again in America.
Today, the iPhone is primarily assembled in China, for around $4 to $6 per hour. If an American factory built iPhones, it would cost just under $35 per hour (not including the cost of a new factory) to assemble electronics. It takes 23 hours to build an iPhone, which means that the cost of an American built iPhone would be about $1,400. Of course, almost all of the parts in that phone were manufactured offshore. Building dozens of new factories and paying US wages would raise the cost of the phone to $2,000 to $3,000.
You may love your iPhone, and you may love American built products, but will you ever love an iPhone that costs $3,000? Of course, there are other options. It takes 23 hours to assemble an iPhone because the factories in China that do the work, are not very automated. If the work is moved onshore to an advanced, state of the art factory in the US, and the work was automated down to just 2-3 hours, the price of the phone would be virtually unchanged. However, there would be very, very few jobs.
Alternatively, Apple could pay Trump's "outsourcing tax" of 35%. That raises the cost of an iPhone to $925. That's still a big price increase, but since the iPhone is the only American phone what choice will consumers have? Oh, right. Consumers have a lot of choices. Like Samsung, or LG or any of the other foreign brand phones. Taxing the iPhone would only eliminate the US as a major player in mobile phones.
It doesn't really make a lot of sense to penalize the last standing US manufacturer of mobile phones. The problem is that there are a lot of products that America no longer produces or that we only have one or two manufacturers left. After all, Trump said that he chose to manufacture his line of men's clothing offshore because there weren't any manufacturers left in America. He's right, there are a few men's clothing makers left in America, but the vast majority has been offshore since the 1980's. Maybe Trump outsourcing plan should only focus on a few select industries?
We definitely want to keep high-tech industries in the US, so what other options do we have? Well, we could have an across the board tax on all mobile phones. Yeah, that would work! Every phone would cost a few hundred dollars more, and it just might trigger a trade war with China and the rest of the world, but it might return a few jobs to the US. Of course, if we went further and taxed all imports, we would definitely have a trade war. We would also increase the cost of more than half of the things that American families buy.
Years ago, Walmart was the cutting edge of outsourcing. They replaced American products with much less expensive products manufactured in China and other offshore locations. Slowly, Walmart grew and replaced many competitors across the US because of their lower prices. Jobs were lost, but consumers greatly benefited. A study from 2010 showed that the average American family saved $2,500 to $3,000 every year just from their savings from shopping at Walmart. If you took all outsourcing into account, American families gained $5,000, $10,000, or more in purchasing power. When outsourcing ends, what happens to that purchasing power?
The problem is that we both consumers and workers. Cheap offshore products don't create a lot of good jobs. But middle-class America could also use a raise, and the loss of inexpensive but good products hurts too. The President and Washington may play a big part in writing national policy, but it is the average American that ultimately chooses which products are bought and which are ignored. Give it some thought America, one way or another Apple is going to build an iPhone 9. You get to choose where it will be built!