Why are Ford and Apple unwilling to move production back to the U.S.?

China Plus Published: 2018-09-12 16:33:19
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Note: The following is a translation of a commentary from the Chinese-language "Commentaries on International Affairs."

The 114-year-old American car maker Ford announced that it is canceling plans to produce the small crossover Focus Active in China for sale in the United States, citing the financial toll of the Trump administration's tariffs on 50 billion U.S. dollars worth of imports from China. Following this announcement, President Trump said on Twitter that if they made the car in the United States, it wouldn't be subject to tariffs. Ford responded on Monday that it has no plans to move production back home. 

A Ford car is on display at the stand of Chang´an Ford during the 15th China (Guangzhou) International Automobile Exhibition, in Guangzhou city, south China´s Guangdong province, 18 November 2017. [Photo: IC]

A Ford car is on display at the stand of Chang´an Ford during the 15th China (Guangzhou) International Automobile Exhibition, in Guangzhou city, south China´s Guangdong province, 18 November 2017. [Photo: IC]

At the same time, American tech giant Apple recently said in a letter to the Office of the U.S. Trade Representative that if the government enacts its plan to introduce an additional 200 billion U.S. dollars worth of tariffs on imports from China, the company's running costs will rise, putting Apple at a disadvantage compared to its competitors overseas. President Trump has since called on Apple to make their products in the United States instead of China, but many analysts suggest that Apple will not do this since the move will definitely increase its costs.

The reason why these American companies have resisted shifting production back to the United States is simple: they can keep their costs relatively low and maintain relatively high profits if their production and assembly lines remain in China.

China has been the world's largest auto market for nine consecutive years. In the first half of this year, 12.23 million automobiles were sold in China, making it the world's largest market. The most popular seller is Ford's F-series, with around half a million sales. No automakers would give up such a profitable market. And if American automakers moved their production back to the United States, and both China and the United States impose an additional 25 percent tariff on each other's imports, the price of imported cars would rise by at least 30 percent. This would make cars imported into China from the United States extremely uncompetitive in terms of price, so Ford has a massive incentive to maintain its production in China. 

As for Apple, China has been consistently gaining value in the global technology industrial chain. Thirty-four suppliers from Hong Kong and the Chinese mainland made it onto Apple's Top 200 list of global suppliers in 2018 – seven more than the year before. Lower labor costs, improvements to the business environment and industry conditions, and increasing efficiency are among the main reasons why Apple is engaging more suppliers based in China. If it moves manufacturing back to the United States, it's destined to face rising labor costs, and the cost of maintaining its industrial supply chain is also bound to rise. This will lead to either higher prices for its customers, or lower returns for its shareholders. And this, in turn, will lead to it losing ground against its rivals. 

Ford and Apple provide case studies on why the Trump administration's tariffs won't help to divert manufacturing and jobs back to the United States. Instead, it may have the opposite effect: As it becomes harder and harder for American companies to trade from within the United States, the more likely it is that they will look to more open markets overseas. Under these circumstances, China has undeniable advantages in terms of the availability of technical expertise, its broad industrial capacity, and its extensive global supply chains. And it is home to teams of engineers and researchers from around the world that can provide the innovations that will drive the future of manufacturing innovation. 


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LU Xiankun Professor LU Xiankun is Managing Director of LEDECO Geneva and Associate Partner of IDEAS Centre Geneva. He is Emeritus Professor of China Institute for WTO Studies of the University of International Business and Economics (UIBE) and Wuhan University (WHU) of China and visiting professor or senior research fellow of some other universities and think tanks in China and Europe. He also sits in management of some international business associations and companies, including as Senior Vice President of Shenzhen UEB Technology LTD., a leading e-commerce company of China. Previously, Mr. LU was senior official of Chinese Ministry of Commerce and senior diplomat posted in Europe, including in Geneva as Counsellor and Head of Division of the Permanent Mission of China to the WTO and in Brussels as Commercial Secretary of the Permanent Mission of China to the EU. Benjamin Cavender Benjamin Cavender is a Shanghai based consultant with more than 11 years of experience helping companies understand consumer behavior and develop go to market strategies for China. He is a frequent speaker on economic and consumer trends in China and is often featured on CNBC, Bloomberg, and Channel News Asia. Sara Hsu Sara Hsu is an associate professor from the State University of New York at New Paltz. She is a regular commentator on Chinese economy. Xu Qinduo Xu Qinduo is CRI's former chief correspondent to Washington DC, the United States. He works as the producer, host and commentator for TODAY, a flagship talk show on current affairs. Mr. Xu contributes regularly to English-language newspapers including Shenzhen Daily and Global Times as well as Chinese-language radio and TV services. Lin Shaowen A radio person, Mr. Lin Shaowen is strongly interested in international relations and Chinese politics. As China is quite often misunderstood in the rest of the world, he feels the need to better present the true picture of the country, the policies and meanings. So he talks a lot and is often seen debating. Then friends find a critical Lin Shaowen criticizing and criticized. George N. Tzogopoulos Dr George N. Tzogopoulos is an expert in media and politics/international relations as well as Chinese affairs. He is Senior Research Fellow at the Centre International de Européenne (CIFE) and Visiting Lecturer at the European Institute affiliated with it and is teaching international relations at the Department of Law of the Democritus University of Thrace. George is the author of two books: US Foreign Policy in the European Media: Framing the Rise and Fall of Neoconservatism (IB TAURIS) and The Greek Crisis in the Media: Stereotyping in the International Press (Ashgate) as well as the founder of chinaandgreece.com, an institutional partner of CRI Greek. David Morris David Morris is the Pacific Islands Trade and Investment Commissioner in China, a former Australian diplomat and senior political adviser. Harvey Dzodin After a distinguished career in the US government and American media Dr. Harvey Dzodin is now a Beijing-based freelance columnist for several media outlets. While living in Beijing, he has published over 200 columns with an emphasis on arts, culture and the Belt & Road initiative. He is also a sought-after speaker and advisor in China and abroad. He currently serves as Nonresident Research Fellow of the think tank Center for China and Globalization and Senior Advisor of Tsinghua University National Image Research Center specializing in city branding. Dr. Dzodin was a political appointee of President Jimmy Carter and served as lawyer to a presidential commission. Upon the nomination of the White House and the US State Department he served at the United Nations Office in Vienna, Austria. He was Director and Vice President of the ABC Television in New York for more than two decades.