Apple might move 15 to 30% of its supply chain out of China

Apple asks supply chain to move

Due to recent escalations in the U.S.-China trade war, Apple is considering reorienting its global supply chain. On Wednesday, Reuters reported that the tech giant asked its major components suppliers to consider moving 15 to 30 percent of production capacity out of China. The firm tasked its partners with assessing the costs of relocating their manufacturing facilities to Southeast Asia.

Apple’s Possible Chinese Components Market Exit

Apple reportedly made its request as a result of President Trump’s decision to apply a 25 percent import tax on Chinese made electronics in May. Last month, J.P. Morgan estimated the new tariffs would force Apple to raise prices on its iPhone by 14 percent. As such, the corporation asked China-based partners Compal, Foxconn, Goertek, Inventec, Luxshare-ICT, Pegatron, Quanta, and Wistron to perform a relocation cost analysis.

Nikkei Asian Review noted the Cupertino, California-based electronics company is dead set on moving its components sourcing out of China. The firm’s executives reportedly want to exit the Sino sector even if the trade war wraps up sooner than expected.

During Apple’s discussions with its semiconductor suppliers, India, Indonesia, Malaysia, and Vietnam came up as possible new production locations. Since the Sino-American trade conflict started, several Chinese semiconductor makers have initiated plans to relocate production to Southeast Asia. Furthermore, several Taiwanese-based manufacturers began migrating out of the mainland because of the trade war.

A Costly Relocation

If Apple pushes for a supply chain relocation, executing the move will be both time consuming and expensive. Brokerage firm Wedbush Securities said the corporation could conceivably relocate five to seven percent of its iPhone production to India within 18 months. However, the firm predicted it could take up to three years to move 15 percent of its iPhone manufacturing to a different nation.

As Apple assembles 90 percent of its products in China, a full exit from the region would take considerably longer.

Moreover, the electronics giant will likely face other issues if it goes through with a supply chain reorientation. For one thing, local manufacturers employ around 5 million Chinese people to make Apple products. The region’s consumers might turn on the brand if the company moves all of those jobs overseas. Indeed, East Asia Apple owners have reportedly begun transitioning to domestic mobile devices in response to the trade war.

Furthermore, Apple’s gradual manufacturing pull-out may prompt retaliatory action from Beijing. Credit agency Fitch reported the Asian superpower is considering blacklisting Apple, Dell, and HP because of the Trump administration’s targeting of Chinese electronics conglomerate Huawei.

Because Apple currently derives 18 percent of its revenue from China, a government ban on its products would be devastating.