Apple stock was trading at $142.45 at the close of the market 04:00 PM EDT.
In recent years, American companies have had more reasons to cut connections with China. Trump’s tariffs. Beijing’s Covid restrictions. Taiwan standoff. Pressure to “friend-shore” supply chains to U.S. allies. As the saying goes, breaking up is difficult. Bloomberg Intelligence’s research of Apple’s efforts to lessen its reliance on China supports this view. Apple started creating iPhone 14 models in India earlier than normal for new models. Foxconn Technology Group, Apple’s main supplier, recently agreed to a $300 million Vietnam expansion.
Bloomberg Intelligence thinks it would take eight years to relocate 10% of Apple’s production out of China, where 98% of iPhones are created. Local component suppliers, contemporary transport, communication, and energy make it hard to leave the world’s second-largest economy. China accounts for 70% of worldwide smartphone manufacturing, and prominent Chinese suppliers account for over half of global shipments, so the region has a well-developed supply chain that will be hard to reproduce if Apple departs. Apple declined to comment.
Looking beyond China for toys and t-shirts is one thing. U.S. tech corporations spent decades and tens of billions of dollars putting up sophisticated production chains for the e-commerce boom. Unwinding these linkages could take just as long and hurt the global economy more. Unexpected occurrences, like Europe and America’s rupture with Russia, highlight the systemic vulnerabilities of strong economic integration and the pace of decoupling.
US-Chinese integration has faced steady political headwinds. Under President Joe Biden, the $615 billion US-China trade relationship has simmered into a cold war after commercial tensions under Trump culminated in tariffs on $360 billion worth of bilateral commodities and U.S. sanctions on key Chinese technology giants like Huawei.
The pandemic led to President Xi Jinping’s harsh virus-containment regulations, which prohibited travel and sealed down major areas for months. Rising tensions over U.S. connections with Taiwan and China’s military maneuvers in the Taiwan Strait are the latest spark for decoupling.
A senior expert at the Center for Strategic and International Studies claimed the trade war and epidemic boosted decoupling. “Shanghai’s shutdown was a huge accelerant.” Early August’s cross-strait crisis added fuel.” According to the data, the Biden administration’s reshoring policy, or “friend-shoring,” remains an aspirational but unmet aim.
U.S. corporations directly invested $90 billion in China by the end of 2020 and another $2.5 billion in 2021, according to China’s commerce ministry. Analysts believe some corporations route investments through Hong Kong or tax havens like the Cayman and the Virgin Islands.
U.S. tech supply networks in China rely on Taiwanese and other enterprises, increasing dependence.
The reticence behind Apple stock exposure
Yellen’s “friend-shoring” notion doesn’t sway America’s friends. Singapore warned the Biden administration that isolating China may destabilize the global economy and “sleepwalk” the world’s leading economies into a conflict. “Such acts block off opportunities for regional prosperity and cooperation, increase differences between countries, and may provoke confrontations we all desire to avoid,” Singapore’s prime minister warned after Biden’s May visit to the area.
Untangling US-China tech supply networks is happening to some extent. In a Sept. 23 analysis, Goldman Sachs Group Inc. concluded that the share of US IT imports flowing directly from China has fallen by ten percentage points since 2017. Apple’s China exposure is larger than most. Amazon.com, HP Inc., Microsoft Corp., Cisco Systems Inc., and Dell Technologies Inc. also rely on China for servers, storage, and networking gear, but not as much as Apple.
Bloomberg Intelligence forecasts that I.T. industry dependence could drop by 20%-40% by 2030. B.I. estimates that hardware and electronics makers might cut their reliance on China to 20%-30% over the next decade. The Biden administration is diminishing economic connections with China in two ways: subsidies and tariffs and export controls.
Biden signed two bills this summer to boost domestic manufacturing of semiconductors, electric vehicles, batteries, and pharmaceuticals. The law prohibits corporations receiving $52.7 billion in federal support from increasing chip manufacture in China or other countries of concern for ten years.
This year, the U.S. administration tightened restrictions on transferring semiconductors to China by requiring licenses to sell chip-making equipment to facilities that create 14-nanometer or more advanced processors. U.S. industry officials are preparing for greater US-China trade hurdles and expect the Biden administration to impose new export restrictions this fall.
Expectations for a great détente between Biden and Xi at the upcoming G20 summit in Bali are modest. Wendy Cutler, a former U.S. trade negotiator and Asia Society Policy Institute vice president, remarked, “I don’t see any breakthroughs.”
Private-sector sentiment has also fallen.
U.S. firms’ optimism about China has plunged to a historic low, and China’s Covid Zero policy, power outages, and geopolitical concerns have forced more than half of surveyed companies to delay or cancel planned investments. Nearly a quarter of poll respondents claimed they’d shifted supply chain elements out of China.
It’s not a Chinese migration. China is a primary production base, while India, Vietnam, Malaysia, Thailand, and Indonesia add significant capacity. U.S. corporations invested $740 million in Vietnam last year, the biggest since 2017 and more than quadruple 2020’s total.
Taiwan is a crucial but vulnerable U.S. supply chain component. Taiwan manufactures more than 90% of the world’s most advanced semiconductors for military and corporate computing. TSMC supplies Apple, MediaTek, and Qualcomm, which dominate 85% of the worldwide handset chip industry. According to Bloomberg Intelligence, Taiwan will remain an important semiconductor manufacturing base for the next five years. China’s growing market highlights U.S. suppliers’ opportunity cost. Bloomberg research shows that 19 of the world’s 20 fastest-growing chip companies are in China.
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