News that the U.S. government accepted some and rejected other tariff-exemption requests by Apple Inc. offers a veneer of triumph both for Tim Cook and President Donald Trump.
As a result of the decision, the company could have to shell out more for components of the Mac Pro. It also means the victors from this charade are neither Texas – where the computer will be assembled – nor China, where the parts will be sourced. More likely, countries such as Vietnam, Mexico and Taiwan will reap the spoils, as they’ve done throughout the trade war.
Companies including HP Inc. and Dell Inc. have been looking to shift their supply chains as the Trump administration tries to wean American companies from their reliance on Chinese suppliers. Officials have also allowed companies to apply for exemptions.
According to the U.S. government, these exclusions are granted based on three factors:
1. Whether the item is available only from China, and whether it (or a comparable product) is available in the U.S. or a third country
2. Whether the additional duties on this item would cause severe economic harm to the applicant, or other U.S. interests
3. Whether this item is strategically important, or related to Chinese industrial programs
Yet a look the Mac Pro components that made the cut and those that didn’t shows just how random this game really is.
Accepted: Structural frame for an automatic data processing machine comprised of stainless steel vertical bars, aluminum top bridge plate and bottom plate, and stainless steel feet. Translation: No tariff on the Mac Pro frame.
Rejected: Modular caster wheel assembly. Translation: Tariffs to be paid on the Mac Pro’s optional wheel set.
A metal PC case probably won’t advance China’s semiconductor industry, but the notion that Apple cannot source that “stainless steel space frame” anywhere in the world but China beggars belief. Given that the U.S. is known to churn out civilian, military, and interplanetary aircraft, the revelation that it cannot sculpt a few feet of metal to hold an 18-kilogram (40-pound) computer must be of profound disappointment to Donald Trump’s America.
The list of five items that were rejected reveals something else, too: Not one of them is deeply dependent on China as a supplier. Denied from exemption are a data cable, a power cable, a central processor heatsink, a printed circuit board and that wheel assembly.
One possible provider for the power cable is Taipei-based Delta Electronics Inc., which already supplies to Apple from factories in China, Taiwan and Thailand. It plans to invest $1.8 billion in Taiwan to boost production and R&D.
Delta is part of a growing repatriation trend: When Inventec Corp., a maker of laptops and Apple Airpods, realized that making U.S.-bound computers in China was a liability it choose to move its factories out – not to the U.S., as Trump intended, but to Taiwan.
Apple’s data cable, meanwhile, could be sourced from Taiwan’s Cheng Uei Precision Industry Co., also known as Foxlink, which has factories in Taipei as well as Vietnam, India, Myanmar and the U.S.
The remaining items on that Apple tariff list are rather generic, meaning there are dozens of companies Apple can turn to. While most of those alternate suppliers are expanding their non-China footprint, few are increasing their U.S. presence.
Mexico, for example, was home to seven Apple sourcing factories in the company’s 2018 Supplier Report published this year, compared with just three sites two years earlier. Even China’s GoerTek Inc. is considering making Airpods in Vietnam, Nikkei reported in July, a move that would skirt U.S. tariffs without creating American jobs or saving Chinese ones.
That Apple even bothered trying to get tariff exemption on a set of wheels tells us that it didn’t try very hard to buy them anywhere else. It also shows the company expects that the low volume of Mac Pro shipments wouldn’t justify wasting time finding a new manufacturing partner (Macs, including laptops and desktops account for less than 10% of Apple revenue). It probably cost them as much to hire Baker & McKenzie lawyers to draft and submit the tariff exemption paperwork as they’d save in taxes.
The good PR that comes from stamping “Made in America” on their computers, however, is worth more than any lawyer.
ABOUT THE WRITER
Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.
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