In a manner of speaking (sort of), Donald Trump has a unique way with words…for sure, they’re not always properly anchored in reality, sometimes incomprehensible, and often prone to veer dangerously into mutton-headed belligerence…but still, take him or leave him, Trump has a peculiar way with words. For example, on his State visit to Qatar on 14 May Trump quipped (no other word seems sufficiently hollow) that he was having “a little problem with Apple…” and particularly with Apple’s CEO, Tim Cook. Clearly, a lot depends on exactly how you define “little” in this context, but the niggling flea in Trump’s ear seems to have been Apple’s decision to switch assembly of its US-bound handsets from China to India (https://www.reuters.com/world/china/apple).
In itself that obviously has a lot to do with India’s burgeoning reputation as a global hub for IT and high-tech manufacturing, but it’s hard to ignore the impact of Trump’s own double whammy decision in April to impose 34% “reciprocal” tariffs on Chinese goods entering the US (www.politico.com/news/china) - subsequently escalated to a nose bleed inducing 145% - and (as if that wasn’t enough), an additional 25% tariff thrown in just for Apple (on all iPhones not either made or assembled in the US). In March alone, those core decisions sparked an immediate $2 Billion increase in the value of iPhones being exported from India to the US, reflecting an obvious attempt to beat the tariff hikes before they became effective.
And, interestingly, that sheer volume of exports (primarily consigned from Foxconn and Tata in India) is itself the clearest possible indication of a tectonic shift in Apple’s production resources away from China to the Subcontinent…but more of that in a moment. For present purposes, you would have thought Trump would be paying attention to this, but apparently not.
A Toxic Move
The toxic combination of a new, massively disruptive tariff programme, not to mention a steady drip feed of Trump’s own off-the-cuff comments, has wiped $70 Billion off Apple’s share price. But like some latter-day, punch-drunk, Cassandra, the White House doesn’t see it that way at all. It’s nothing to worry about because now Trump had set his sights firmly on India itself, and, at the risk of scattering a few more of Donald’s Apple nuggets across the Newswire: “I said to him, Tim…you’re building all over India…I don’t want you building in India. …India can take care of themselves…we want you to build here”.
All well and good you might think, but of course this is just another of those Trumpian reality disconnects: at the moment, and for very good reason, not a single iPhone is actually manufactured in the US because the cost of assembly would literally treble if production was to be switched there (https://www.wedbush.com/). Tim Apple knows that Narendra Modi knows that, and hey, who knows, maybe Donald Trump knows it too. No properly managed business would willingly embrace a threefold increase in production costs so as to escape the short-term impact of a 150% tariff.
And, of course, Apple has already substantially relocated production to a lower tariff territory (India) in the face of such severe supply chain risks, which is precisely why the Subcontinent has now assumed such enhanced significance: not only for Apple but for globalised markets generally. After all, it was Margaret Thatcher who said (rightly) that you can’t buck the market, and that’s exactly what Prime Minister Modi is moving so shrewdly to avoid.
Over recent years New Delhi has emphasised the importance of IT, and Smartphone manufacturing in particular, as a key component of the Subcontinent’s future growth strategies (building progressively on the untrammelled ambition of this, the fastest growing large economy on the Planet). So the chances of Narendra Modi, or anyone else in India for that matter, suddenly buckling in the face of Trump’s tortured trade rhetoric is, well, to put it bluntly…precisely zero.
Which is, I’m afraid, a cue for more (very) loosely structured Trumpisms.
A New Trade Deal?
According to Trump (this is again from his Qatar visit), India has already proposed a new Trade Deal with no tariffs at all for imported American goods. But that isn’t so according to more reliable New Delhi sources: in particular India’s Foreign Minister, S Jaishankar, who bluntly responded to Trump’s off-the-cuff musings by pointing out that “nothing is decided until everything is”, and that any future trade deal would have to be mutually beneficial to both countries…which, of course, also puts issues such as iPhone production on the Subcontinent firmly front and centre in the ongoing trade dialogue (whether Donald Trump likes it or not)
In short, don’t expect any major concessions from New Delhi anytime soon, because in real life reality trumps rhetoric every time.
Red Ribbon Asset Management (www.redribbon.co) was established more than a decade ago to harness the full potential of India’s fast-evolving and emerging markets: meeting the demands of global communities as part of a circular economy, whilst at the same time recognising the compelling demands of planet people and profit.
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Red Ribbon Asset Management (www.redribbon.co) aims to harness the full potential of fast evolving and emerging technologies to meet the needs of global communities as part of a circular economy, fully recognising the compelling demands of planet people and profit.
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