EC Apple Amidst US-China Wars

Apple captures a whopping 42% of the retail price of each iPhone sold. The rest goes to the cost of materials (22%), distribution (15%), IP licenses (5%), and countries like South Korea (1%), Japan (1%) and Taiwan (1%). Labor costs in China account for only1 percent of the total (Figure 1).

Figure 1 Value capture for iPhone 7

 

Source: Kendrick, J. and Kraemer, K.L. 2017, WIPO.


Usually, multinationals' revenues contribute to consumer welfare via progressive taxation. However, US companies tend to minimize taxes via creative accounting and tax havens, so there’s a gap between what’s paid officially and effectively.

Since the 1980s, these disruptive changes have dramatically contributed to erosion in progressive taxation, consumer welfare and thus to income polarization in America. That’s America’s challenge, however; not China’s.

Apple, offshoring and Taiwan

If the value capture isn’t the issue, what about offshoring to China? That’s the third misguided assumption. 

Apple’s “Greater China” market includes not just China, but Hong Kong and Taiwan. It has assembled most of its products in China for a quarter of a century, thanks to Foxconn (Hon Hai), the huge Taiwanese multinational electronics contract manufacturer founded by Taiwanese billionaire Terry Gou.

Moreover, work conditions at Foxconn factories have been a matter of public debate since the early 2010s. The basic salary for a worker at a Foxconn facility is about $315 per month; less than 10% of the median American salary.

In June 2017, Foxconn said it would build a $10 billion TV manufacturing plant in southeastern Wisconsin that would initially employ 3,000 workers set to increase to 13,000, in return for the highest subsidies in US history. A few months later, a plant was launched in Mount Pleasant, Wisconsin (Figure 2). 

Figure 2     The Rise and Fall of Foxconn’s US venture

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Dr. Dan Steinbock is an internationally recognized strategist of the multipolar world and the founder of Difference Group. He has served at the India, China and America Institute (USA), Shanghai ...

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William K. 3 months ago Member's comment

Comparing pay without comparing the cost of living in an area is very intentionally misleading. And it is likely that China doe not have the equivalent of our federal reserve constantly pushing for more inflation. It doe cost less for a worker to live in China, so a comparison with what it cost here in the USA is a false comparison.

Angry Old Lady 3 months ago Member's comment

Exactly right, William.