What The Hell America!

Patrick McGee’s new book, Apple in China: The Capture of the World’s Greatest Company, is out this week, just as the U.S. and China agreed to lower tariff levels for 90 days, with levies on Chinese imports dropping to 30% from up to 145%. 

Apple, the world’s second-most valuable company, is caught between the U.S., its home country, and China, its primary manufacturing base. Over the past few years, Apple has set up more production lines in Vietnam and India, and Chief Executive Tim Cook recently said most iPhones sold in the U.S. would be made in India. The company has also pledged to buy chips from TSMC’s Arizona plant and to make servers in Texas starting next year. 

Yet McGee, who reported on Apple for the Financial Times, argues that the company is still far from withdrawing from China. The company has invested billions of dollars in talent and equipment in China, and the country’s authoritarian government now has more influence over Apple’s fate than any other country, he writes. As China and the U.S. held their closely watched trade talks, McGee spoke to Rest of World about where Apple stands. 

The interview has been edited for length and clarity.

What is the main thrust of your book? 

My argument is essentially that Apple is playing the role of Prometheus handing the Chinese the gift of fire. Apple’s influence on China exceeds that of the Marshall Plan’s impact on Europe after World War II. 

Apple acknowledges that it’s trained 28 million workers in China since 2008. It’s greater than the labor force of California. And the figure is a decade old, but they were investing $55 billion a year in China.

The Achilles heel of the company is that everything is made in China … [and] we were not putting enough attention on it.

Apple has been expanding its manufacturing presence in countries like India and Vietnam. Do you think Apple is on its way to reduce its reliance on China? 

I think Apple wants the perception that they are moving a lot to India, that they are responding to what Donald Trump is asking for. And they want the reality of continuing to build as much as they can out of China because its capabilities there are second to none.

If next year you buy an iPhone and it says “Made in India” on the box, that phone will not be any less dependent on the China-centric supply chain than any other iPhone you have ever purchased.

If for some reason something hits the fan in China, no iPhones will be made in India because all of the sub-assembly, and the years of work leading up to it, is still all taking place in China.

Why is Apple so slow on diversifying out of China? Is the company worried about anything happening to its supply chains there? 

One is that China can make it really difficult for them. Are they going to more publicly move things to India? And say “yep, we are rounding down our investments in China?” 

I quote someone saying that they need to walk out of China, but they can’t run. If they run, they risk the ire of Beijing as well as the Chinese consumers. But if they go too slowly, then they remain stuck in China. So they have to find this perfect pace to exit because they can’t become the poster child of de-risking from China. 

I have got sourcing that Apple has told China, “OK, more stuff is going to India, but the supply chain is becoming more and more Chinese.” The rise of the “red supply chain,” which includes companies like BYD, [electronics firm] Luxshare, [acoustic parts maker] Goertek, and [semiconductor company] Wingtech, is of geopolitical importance.

Can Apple replicate its powerful supplier network in China elsewhere? 

I wouldn’t say never, but I’m not optimistic. I think China was a once-in-a-century partner that operated at a level of investment, of speed, of political quickness that it’s going to be really difficult for any other country to replicate.

Things are moving to India, just way more slowly than anybody seems to understand. Apple started with zero phones made in China in 2007. By the end of the year, they had made 3 or 4 million. And by 2014, they were building about 200 million phones. 

A decade later [2017], the first phones were made in India. And by 2024, about 25 million phones were made in India. At best, the diversification to India has happened at one-tenth the speed that happened in China a decade earlier. 

Why Vietnam is so proficient at manufacturing is that they are close enough to China to be able to get all the materials and components. But if something blew up in China, again, you wouldn’t be like, Oh well, thank God for doing this in Vietnam. Because in that scenario, Vietnam would be as exposed to China as anybody else is.

You write that the supply chains Apple cultivated have also benefited China’s homegrown tech giants. Apple is now losing market share to Chinese brands like Huawei and Xiaomi; are the Chinese tech industry and consumers ready to live without Apple? 

The reason why Beijing at the moment would not take any action against Apple is because they learn so much from them. For instance, the Vision Pro headset is all being assembled by Luxshare. So you can imagine it’s a bunch of Ph.D.s from Apple teaching them how to do it.

I don’t know that iPhone share [in China] is going to fall apart anytime soon, just because there are so many other reasons why, if you’re in that ecosystem, you stick with it. But consumer loyalty is less explicit in China. So many of the applications that they use are not from the app store, but the WeChat universe. And Chinese customers have reasons for supporting a national champion. 

As China and the U.S. negotiate tariffs and trade now, can Beijing use Apple as a bargaining chip? 

The way you phrased the question is already really revealing, right? You didn’t ask, can Washington use Apple as a bargaining chip?

That’s a crazy thing to say, that it’s America’s most iconic company and it’s a bargaining chip of Beijing’s. Yeah, I mean, you’re totally right. Beijing clearly has more of a hold on Apple’s day-to-day operations than Washington does.