Here Is Why a U.S. iPhone Factory May Be on the Near-Term Horizon

Apple's (AAPL) production of the iPhone in China could be detrimental to its long-term growth.

President-Elect Donald Trump's rhetoric during the campaign of establishing a 45% tariff on Chinese goods imported into the U.S. could become policy starting in January. Bankers and lawyers are already advising Chinese clients to cease any programs until his stance on cross-border deals for U.S. targets gets clarified.

On Friday, Japanese newspaper The Nikkei reported that Apple has approached two iPhone manufacturers, Foxconn Technology and Pegatron, to investigate moving iPhone production to the U.S.

Let's take a close look to see if it is viable and what the implications for Apple and its supply chain would be.

Although the iPhone is manufactured by the Chinese, the major chips come from non-Chinese suppliers such as Broadcom, Intel, NXP, Qualcomm, Samsung Electronics, Skyworks Solutions, Texas Instruments and TSMC. 

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Many of these companies are building or have built semiconductor fabrication plants in China to reduce manufacturing cost through perceived cheap labor and their proximity to end-product contract manufacturers,. This could, in fact, be a detriment to these companies.

For example, Intel's Dalian fabrication plant has been outfitted to produce 3D NAND chips. Much of the output will go into smartphones.

Obviously, they won't go into a Samsung Electronics smartphone because that company makes its own 3D NAND chips, but they could go into other manufacturers' phones as well as the iPhone.

At issue is whether Intel's 3D NAND chips, made in China and imported into the U.S. for use in iPhones could be subject to the 45% tariff. Clearly the policymakers have much to consider.

One alternative to get around a possible 45% tariff for iPhone manufacturers is that production in China could halt and Apple could move assembly to other low-cost places such as India, Mexico or Southeast Asia.

But keep in mind that the Trump administration isn't anti-China but against products made by U.S. manufacturers in China. The 45% tariff could readily be placed on these other countries.

Clearly, the U.S. is the most viable manufacturing solution because it brings jobs and revenue (taxes) back to the U.S.

President Barack Obama made a mistake eight years ago when he tried to bring solar jobs back to the U.S. because he overlooked the fact that as Chinese manufacturers drove U.S. manufacturers out of business through low-priced solar panels, they came back and bought the empty solar plants. Although U.S. citizens now had jobs, money went back to China.

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