Trump’s vow to force Apple to manufacture here is misguided

By Gary Shapiro

News item: Trump makes bold Apple promise

Republican presidential front-runner Donald Trump vowed to stop Apple from using China’s supply chain for its manufacturing needs and would get the company to start “building their damn computers and things in this country instead of other countries.” Trump, who made that pledge at the end of a speech at Liberty University in Lynchburg, Va., on Monday, has regularly attacked U.S. companies for making their products elsewhere. He didn’t get into specifics about how he could force a U.S. firm to change its global manufacturing process.

Presidential candidate Donald Trump gets a pass from some people for saying foolish things. His supporters don’t think they’re foolish and accept them as gospel. Many other Republicans know better, but are reluctant to criticize someone who may be the party’s standard-bearer this fall. The media love the controversies Trump creates and are always eager to report them and then move on to the next outrageous utterance.

I fear for our nation that a candidate for president would lead in the polls after making so many idiotic statements (e.g., building a wall paid for by the Mexicans; temporarily banning Muslims from entering the U.S.; arguing that former POWs like Sen. John McCain of Arizona are not war heroes). Yet, less than a week after a promise to put a 45 percent tariff on all products from China, along comes this doozy — require Apple to make and build all of its products in the U.S.

Apple is now the world’s largest company, based on market value. It is a crown-jewel American company with global operations and success. It has changed globally how people get, share and use content. Based in the U.S., Apple employs thousands of Americans, has made tens of thousands of Americans wealthy through stock ownership and is loved and appreciated by millions of Americans who choose to buy Apple products and hold them in their hands several times a day.

And the economic benefits of the iPhone go far beyond the physical manufacture of the device. As Apple notes: “Largely as a result of the App Store’s success, Apple is now responsible for creating and supporting 1.9 million jobs in the U.S. alone. Nearly three-quarters of those jobs — over 1.4 million — are attributable to the community of app creators, software engineers and entrepreneurs building apps for iOS, as well as non-IT jobs supported directly and indirectly through the app economy.”

So, what is Apple’s crime that Trump wants to have the government interfere in its business and totally change its business model? Apple’s crime is they make some of their products in China. (They also make some products here in the U.S.)

If it’s a crime for Apple to manufacture in China, then it’s ironic, since China is one of their biggest and fastest-growing markets. The Chinese government’s view is that Apple sells smartphones and tablets for a few hundred dollars, and only 1 percent or 2 percent of that goes to the Chinese workers and factories. Apple components are sourced around the world, including many from the U.S. (think Corning, Qualcomm and Intel) and their cost and almost all the profit ends up outside China. Several top Chinese officials have told me they think Apple and the Americans get all the benefits from Apple’s success.

So, what if we did what Trump wants? Apple would then face huge additional costs making iPhones and iPads and would have to raise its prices to the American consumers several-fold. Moreover, we would destroy the two-way nature of international trade and leave our biggest and best exporters, such as Boeing, GM, Ford and IBM vulnerable to Chinese retaliation.

Almost every economist knows and accepts the “law” of comparative advantage. It states that if countries do what they do best and trade with each other, then everyone benefits — both citizenry and companies — from lower prices, competition and a higher standard of living. Trump, with all his persuasive powers, cannot change this fundamental law of economics.

Nor should we want to change basic economics and incentives. Of course, Americans should be manufacturers, especially in highly skilled manufacturing. But I have been in scores of Chinese factories, and the assembly work consists of redundant, simple, repetitive tasks that many with an education would be unsatisfied doing.

Simply put, China has low-cost, low-skilled labor and the U.S. does not. And if China stumbles, (or, more likely, keeps facing higher labor costs), Indonesia and other Southeast Asian countries and their citizens will happily take over these manufacturing opportunities.

Consider Brazil. They have tried what Trump advocates. Duties vary according to the value of a given product, but can reach as high as 55 percent.

The result is high domestic prices for consumer electronics, often making them inaccessible to average citizens. The result is that upscale Brazilians visit the U.S. with empty suitcases and leave with luggage full of electronics. Pilots joke that they use twice as much fuel to return to Brazil, as the planes are heavier. While this type of commerce benefits U.S. retailers and local governments (with sales-tax revenue), it dulls the Brazilian economy and raises product prices for Brazilian citizens.

Building walls, raising tariffs and domestic manufacturing requirements may have political attraction to those with no knowledge of — or experience in — international trade, but the fact is that our American way of life and standard of living benefit from and rely on trade.

Thanks to free trade and American creativity, we are the envy of the world in producing world-leading companies. Every major Internet company, our music industry, our motion-picture industry, our pharmaceutical companies, and companies in so many other areas, from retailing (think Starbucks and Amazon) to hotel chains (think Marriot, Starwood and, yes, even Trump) benefit from the free flow of people, things and services.

For the U.S. to advocate border closings would hurt the U.S. more than any other country, and create a worldwide depression and a regression in our standard of living and innovation that would set us back decades.

So, no, Mr. Trump. The last time the U.S. tried anything as dumb as your China proposal, the Smoot-Hawley Tariff law of 1930 raised U.S. tariffs on more than 20,000 imported goods to record levels. That led to the Great Depression.

Your ideas may smartly play to a certain type of voter, but they’re economic suicide for America, its people and our world-leading companies.

Gary Shapiro is president and CEO of the Consumer Technology Association (CTA)™, the U.S. trade association representing more than 2,200 consumer technology companies, and author of the New York Times best-selling books, Ninja Innovation: The Ten Killer Strategies of the World’s Most Successful Businesses and The Comeback: How Innovation Will Restore the American Dream. His views are his own. Connect with him on Twitter: @GaryShapiro