American manufacturers, including Apple, have begun to feel the squeeze from U.S. tariffs imposed by China. Suppose, then, that Apple heeds U.S. President Donald Trump’s call this month to shift production of consumer electronics back home, according to the “solution” he proposed in a September 8 tweet.
If Apple scales back contracts in Asia, at least a half-dozen core suppliers and assemblers in tech hardware hub Taiwan would face a loss in orders, analysts forecast. But those corporate heavyweights might be able to retain Apple’s business by moving their China-based production back home to Taiwan, if not to the U.S., and using automation for lower costs.
“Once the tariffs for smartphones increase, the smartphone OEMs will be most likely to experience adjustments,” says Boyce Fan, research director with Taiwan-based market analysis firm WitsView. Fan expects to see eventual improvement in the level of components modularization, automation and production efficiency.
Taiwanese firms in question include assemblers Foxconn Technology and Pegatron as well as component manufacturers like Largan Precision, which produces camera lenses, and touch panel supplier TPK Holding. Suppliers in China, Japan and South Korea will probably fret about Apple orders, too. Together, they now are helping Apple raise global iPhone production volume this year 0.4% to about 222 million units, Taipei-based market research firm TrendForce estimated in a statement emailed to reporters in Taiwan.
Taiwanese manufacturers have other clients but count Apple as one of their most-valued customers. To wit, 11 of Taiwan's wealthiest tycoons have built much of their fortunes by selling to the Silicon Valley giant.
Automation and relocation
While the headquarters of these companies sit in Taiwan, which is not a target of the Sino-U.S. trade dispute, some produce their goods at factories in China, making them subject to the tariffs if their products are sent to the U.S. Foxconn, Pegatron and their Taiwanese peer Wistron all manufacture in China.
Trump’s bite at Apple came after the company warned that his threat of imposing tariffs on another $200 billion of Chinese imports would likely increase prices on some of its product line-up. The Apple Watch, AirPods and Mac mini desktops will be first in line for price hikes, tech media reports say.
Apple may also turn to its contractors to cut costs and either avoid or reduce the expected price increases. And for that reason, manufacturers may look to move production capacity back to Taiwan to avoid tariffs, Fan says. Manufacturing costs more in Taiwan than China, but labor in Taiwan comes to just 60% of what employers pay in places such as Singapore and South Korea, DBS Bank estimates. It’s well below U.S. costs, analysts say.
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Some Taiwan tech firms, most notably Foxconn, already operate factories in the U.S and could feasibly move final assembly of Apple’s gear to the U.S. after some initial work at their cheaper China bases, says Tracy Tsai, research vice president with tech market analysis firm Gartner in Taipei.
Contractors would likely get Apple's attention as well if they automate, Fan says, or modularize components. Modularization means creating standalone parts that can be built into numerous hardware systems. Foxconn has spent heavily in automation including an investment of $4 billion earlier this year for robotics and other automation across its factories.
Time for preparation
Apple declined comment for this report, but analysts who follow the firm say there would be little impact on Apple’s Taiwan contractors right away if it opted to shift production. “The whole supply chain ecosystem is huge, and it’s hard to find any alternative sourcing in the U.S. to replace the current one in a short time,” Tsai says.
For one thing, it would take Apple some time logistically to base production in the U.S. That lag would give Taiwanese firms their own time either to move factory work out of China or prepare for losses of orders. Because Apple has come under scrutiny before to onshore more production, Trump’s tweet by itself or the accumulation of Sino-U.S. import tariffs probably won’t touch off fires in Taiwanese tech firm boardrooms.
Whether more Taiwanese contractors follow Apple all the way to the U.S. will depend on the outcome of the Sino-U.S. trade dispute as well as other “relevant policies,” Fan says. Pegatron CEO Liao Shy-jang said last year the company would be willing to manufacture for Apple in the U.S. if the client absorbed the added costs, this 9to5Mac report claims.
However, some contractors may just accept a loss, says Christopher Thomas, an economist with the Spanish forecasting firm FocusEconomics. “If U.S. tariffs push Apple to shift operations stateside, suppliers across Asia will be hit, and a number of the company’s established value chains upended,” he says. “Onshoring even a fraction of assembly, unlikely as it is given prohibitive U.S. labor costs, would bruise orders in manufacturing hubs like Taiwan where Apple is a big-fish customer."
