Last week, the Nikkei Asian Review reported that Apple (NASDAQ:AAPL) had asked its contract manufacturers to produce 30% of the iPhone’s components outside of China.
The trade war is wreaking havoc on corporate supply chains, which is terrible for AAPL stock. But more importantly, the bigger problem is that the request highlights globalization’s glaring weakness.
Globalization Is Time-Consuming
The first cracks in globalization’s strong appeal came several years ago when retailers realized that buying products six months to a year ahead of time made absolutely no sense because customers want to choose from many options.
Nor does it make much sense to ship clothes from China to America, given the greenhouse gas emissions created by the world’s shipping industry. The sector, which moves 90% of the world’s trade, emits as much greenhouse gas as Germany does.
Whether we’re talking about a t-shirt or an iPhone, it’s got to be better from both a time and greenhouse gas emissions perspective to make products closer to end-user markets.
Now, with the U.S./China trade war causing significant disruption to the global supply chain, Apple is looking for ways to mitigate the damage to Apple stock orice from an extended battle between the world’s two largest economies.
However, it’s clear that the trade war is only a symptom of the actual underlying problem that globalization doesn’t work , at least not in the way that it was intended to.
Apple could make its iPhones in the U.S. and still make decent profits on them. However, AAPL has a responsibility to the owners of AAPL stock to deliver maximum profits, which is why the company is now looking to move some of its production out of China.
Companies Should Make Their Products Where They Sell Them
Up until 1992, Canada only allowed beer to be sold in the province in which it was brewed. The move was intended to create jobs in every province. Some, like the Fraser Institute, a right-wing Canadian think tank, believe the legislation made Canadian breweries unproductive compared to their U.S. counterparts.
While that might be true, the creation of hundreds of craft brewers from Nova Scotia to British Columbia has proven that locally sourced products can thrive in the North American market despite their apparent inefficiencies.
Foxconn, one of Apple’s largest manufacturing partners, has enough capacity to make all of the U.S.-bound iPhones outside China.
And since 25% of the world’s iPhones are sold in America, it makes sense for Apple to look beyond the current logistical nightmare caused by the ongoing trade war and create permanent manufacturing capacity in Wisconsin where Foxconn is building a plant.
On June 11, Foxconn said that it would hire up to 2,000 people for its Wisconsin plant by the end of 2020. It will make networking, server products, and LCDs at the plant. Initially, the plant was supposed to create 13,000 jobs for the Wisconsin economy.
With all the supply problems created by the trade war, it’s possible that Foxconn still might create those 13,000 jobs to meet Apple’s needs in the U.S.
Although I don’t agree with President Trump’s tariff war, I must admit it’s done an excellent job highlighting the fact that globalization has failed.
The Bottom Line on AAPL Stock
In my opinion, it makes sense for Apple to permanently move the production capacity needed to make its products destined for the U.S. market closer to home.
Foxconn would like to see Apple move some of its production from China to Taiwan. While that might make sense in the short term for AAPL stock, over the long-term it’s probably wiser to find a way to do more of its manufacturing in the U.S.
Given the fact that services are becoming a more significant part of Apple’s business, it won’t need to make nearly as many iPhones in the future to fulfill its responsibilities to the owners of Apple stock. It’s time for Apple and other large companies to admit that globalization has failed to live up to its PR.
Onshoring could be very good for Apple stock price.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
