Apple’s major headache is trying to find a substitute for China

Nick Monte

Apple (AAPL) shares jumped roughly 2% right out of the gate Monday morning following comments from President Donald Trump, telling reporters he had a positive meeting with Apple CEO Tim Cook.

“Tim was talking to me about tariffs,” Trump said. “And you know, one of the things that he made a good case is that Samsung is their number one competitor and Samsung is not paying tariffs because they're based in South Korea. And it's tough for Apple to pay tariffs if they're competing with a very good company that's not.”

Trump had announced plans to impose taxes on another $300 billion of Chinese imports on Sept. 1, but last week said the administration would delay taxes on certain products, including smartphones, laptops and video game consoles until Dec. 15 Trump.

Apple, like many other companies, is in the middle of Trump’s trade war to some extent. Many Apple products, including the iPhone, are manufactured in China by suppliers including Foxconn.

According to recent reports, Apple is considering moving some of its hardware production out of China. But finding a substitute for China is not easy – “even when you relocate to a more open and more liberal democratic economy like India, they too have industrial policies,” Parag Khanna, author of “The Future is Asian,” said on Yahoo Finance’s “The First Trade.”

“They’re making significant demands in procuring wholesale suppliers and technology transfers. So it’s going to be a bumpy ride and a headache. There’s no one country that can substitute for China,” said Khanna.

With Samsung (KS) and Huawei taking an increased share of smartphone sales, Apple needs to take steps to secure income from its flagship device, the iPhone.

The only problem is China seems to be the best option when it comes to iPhone output.

“No other country nor a developing market with a low-cost labor force offers them integrated technological and manpower ecosystem that China does,” Khanna said. There are a couple of “effective cities built just to assemble Apple phones. India doesn’t have that. Vietnam doesn’t have that. So it’s easier to look at a map and say we’ll just relocate there. It’s a lot harder to actually do it,” he said.

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