Foxconn and Apple Play a Little Chicken with China

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According to both Bloomberg and the Wall Street Journal, Foxconn has gone on the record saying that they can shift US iPhone production out of China so that Apple can avoid a hit on tariffs, if necessary. While it was made clear that Apple hasn’t yet asked them to do this yet, these comments were calculated and aimed directly at Beijing.

So why is Young Liu, Foxconn’s head of the semiconductor division, making a public statement about what is still a hypothetical situation? That’s the easy part- because Apple told them to. So why would Apple resort to using an intermediary to make a statement to China? Because they have to. Even though everyone involved knows exactly what’s happening here, Apple is already struggling through a fight with China that they didn’t start, so they can’t afford to be seen making a thinly veiled threat so directly.

Here’s the thing. This situation isn’t Apple’s fault. They are not responsible for the trade war that the Trump administration is waging on China. In fact, Tim Cook is one of a very small number of Silicon Valley CEOs who still maintain direct relationships with this extremely controversial President and he has been clear that he and Apple aren’t in favor of these tariffs. However, despite Apple size and what their success means to the American economy, Donald Trump clearly isn’t interested in doing them any favors here.

However, absolutely none of this matters in China. The trade war is real and it has clear battle lines. Unfortunately for Apple, they now find themselves on the opposite side from the massive economy that helped them get over the $1 trillion valuation summit first. No matter what those inside the Chinese government may think about this situation, the outcry from their people over all of this has set the stage for a real battle with real consequences. They are taking direct action against Apple and other US companies, even if their government doesn’t.

So Apple needs China. There’s no mystery there, as rapid growth in China was a huge driving force behind Apple’s continued rise until last year. Their declining sales in China have had just as strong of a negative impact. However, what may not be as obvious is that China really needs Apple, too. Their economy has been mired in a recession for a couple of years now and Apple generates a lot of money, and more importantly, employs a lot of people in China. While Apple moving its US iPhone production elsewhere wouldn’t end their presence in the country, it could disrupt the supply chain that China has kept a tight grip on for years. Whatever the negative impact, China can ill afford to take a big hit right now.

This is where the game of chicken comes in. I’m sure that Apple would prefer to keep a passive stance in this trade war between the US and China. However, it is clear that Donald Trump is going to do whatever he wants when it comes to tariffs, regardless of short-term economic consequences or political pressure applied by one of the nation’s largest economic giants. If Apple can’t change things at home, then they are left with no choice but to try and make China blink. There’s just too much money on the line for them not to pull out all the stops.

Games of chicken are risky enough when the stakes aren’t this high, but this one has a wildcard who has proven to be the ultimate in unpredictable. The world thought the issue of trade tariffs against China was settled a few months ago until Donald Trump took to Twitter again and instantly sent Apple’s stock price south. Even if Apple can get China to blink and cut a deal to keep them and their iPhone production right where they are, who knows what this President will do next.


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