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The Great Wall of India: Maybe It's Time To Make Apple An Election Issue Again

This article is more than 7 years old.

Back in January before he was the Republican presidential nominee, Donald Trump made Apple one of the targets of his trade-related vitriol. "We're going to get Apple to start building their damn computers and things in this country instead of in other countries," Trump said, suggesting the iPhone maker wasn't being especially patriotic making its products abroad.

Never mind the unrealistic nature of those remarks -- Apple quite literally couldn't build all its iPhones in the U.S. anytime soon. Maybe it's time for Trump (and presumptive Democratic nominee Hillary Clinton) to take up the Apple issue again. Only this time, instead of targeting the company they should be going after India, whose bizarre trade barriers are designed to keep companies like Apple out. India's latest move? The commerce minister just rejected an Apple plan to make iPhones more affordable in India by selling refurbished phones there for lower prices than new ones, according to a report from Live Mint.

But there's more. India also refused to grant Apple a waiver that would allow it to open branded retail stores in the country, instead choosing to enforce a "local sourcing" requirement. That rule requires companies to obtain 30% of what they sell from sources within India. This is precisely the kind of non-tariff barrier that the presidential candidates should be talking about; it's solely designed to make it more difficult for foreign companies to do business in India.

The rule, to be clear, is a sop to local manufacturing interests. But it isn't an especially good way to create wealth. There are two critical reasons why. First, it doesn't stop a foreign company from setting up manufacturing in India, so long as they're willing to navigate a thicket of red tape, occasional corruption, and questionable infrastructure -- especially with respect to roads. Apple's main assembler of iPhones, Foxconn, is doing just that right now partly because Chinese labor isn't as inexpensive as it used to be, but largely to help its many customers do business in India more easily. The more iPhones and other products Foxconn assembles, the richer that Taiwan-based company gets.

The second reason why this situation is so foolish, however, concerns value creation. And once you understand that, it will become clear why this is worthy of presidential attention. Let's say India succeeds in getting Apple to assemble iPhones there. Of the $650 selling price of an iPhone 6s, very little will accrue to local workers. IHS estimates an iPhone 6s costs Apple $236 to build. Of that, $231 is parts and less than $5 goes to assembly. Require iPhones to be build in India and the processors will still come from TSMC or Samsung, the displays will still come from Japan Display and LG, the radio parts will be provided by Qualcomm or Intel. The $5 in value will go to India. That's about 2% of the build cost of the phone and less than one percent of its eventual selling price.

What's odd is that whether the phone is built in China or India, if it gets shipped back to the U.S. and sold to a customer in Nebraska, New York, or any of the 50 states, it will count against the trade deficit at the wholesale value of the phone -- $650 less a small margin for retailing.

This creates a lot of important national accounting and technically widens the trade deficit. In oversimplified politics -- often the only kind we get these days -- this is a "bad thing." In reality, though, it doesn't matter one bit. Don't believe me? Read Mark Perry of the conservative American Enterprise Institute in the Los Angeles Times. Or just consider this one takeaway: For every dollar of "trade deficit," there is a corresponding dollar invested in the U.S. The two have to balance out which means that those giant sums equal significant investment in making America great again. Here's Perry: "For Trump and the media to constantly lament America's trade deficit is to lament the fact that foreigners are eagerly investing hundreds of billions of dollars in America every year."

The other $400 in iPhone value beyond the parts and assembly, of course, accrues to Apple. (It's incidentally irrelevant whether the IHS estimate is wildly incorrect, as CEO Tim Cook has implied in the past. Apple makes hundreds of dollars per iPhone so stick with me.) Apple passes that on to workers in the form of pay, to the U.S. Treasury in the form of taxes, to shareholders in the form of dividends and stock buybacks. And the majority of those workers and shareholders live in the good old U.S. of A.

What all this means is that when India stops Apple from engaging in plans to sell more iPhones in India -- whether it's through company-owned stores or by refurbishing and reselling old phones -- it prevents Americans from getting wealthier. Trump seems to equate a lot of "greatness" with wealth so you would think he would want Apple to succeed in India. Clinton, for her part, has shown increasing ambiguity in her commitment toward freer trade.

Despite a recent rocky period for its stock, Apple is still the world's most valuable company. And American. It has the most valuable brand in the world. Most other countries' leaders would tout the great success of a homegrown giant and do everything they could to support its quest to continue succeeding. Will our next president?

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