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Apple may skirt IPhone tariffs as Foxconn comes to the US
[SAN FRANCISCO] Apple Inc likes to say it supports 2 million US jobs. Plans by the company's main manufacturing partner for a US$10 billion factory in Wisconsin will add at least 10,000 more, helping Apple fend off the threat of import tariffs on its most important product, the iPhone.
President Donald Trump and Foxconn Technology Group Chairman Terry Gou said in a White House press conference on Wednesday that the factory will initially employ about 3,000 people, before expanding to as many as 13,000. It's being built in House Speaker Paul Ryan's home electoral district.
The factory will make LCD display panels for televisions and computer screens that are unlikely to carry the Apple logo. However, the investment may discourage lawmakers from introducing import taxes on products Foxconn does make for Apple, such as the iPhone, which are harder to assemble in the US Republican leaders, including Ryan, said in a statement on Thursday that a border tax on imports is now unlikely to be part of any legislation this year.
"Foxconn is doing its best to try to head off a trade war and they're obviously being quite strategic in terms of making their investment in house speaker Ryan's home district and thereby trying to gain goodwill," said Mark Wu, an assistant professor at Harvard Law School who serves on the World Economic Forum's Global Future Council on Trade and Foreign Direct Investment. "If the administration did decide they wanted to target something, Foxconn could say 'Go after someone else's products rather than ours because we're helping you'." Mr Trump targeted Apple during his election campaign, promising to force the Cupertino, California-based company to bring more factory jobs to the US. The rhetoric prompted fears of a trade war with China, where contract manufacturers such as Foxconn, Pegatron Corp and Quanta Computer Inc assemble gadgets designed by US tech companies.
"Currently Trump's policy is to try to create job opportunities, so threatening import taxes was a way of encouraging companies to bring manufacturing to the US," said Annabelle Hsu, a researcher at IDC in Taiwan. "Now they've promised to do so, there's less need to introduce such a tax." Making iPhones is more complex and labor-intensive than LCD panels, and smartphone assembly relies heavily on an extensive supply chain in China. That makes the prospect of import tariffs a real risk because Apple can't easily ask contract manufacturers to put its phones together in the US. IHS Markit estimates that iPhone 7 manufacture costs US$5 per handset in China, where labor costs are about 10 times cheaper than in the U.S.
Still, as much as US$3 billion in state government incentives offered to lure Foxconn to the US may ultimately bring other manufacturing facilities. The combination of lower shipping costs and incentives would more than offset higher American labor costs, according to IDC's Hsu.