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The Cost of a Made-in-America iPhone

Does increasing the price tag make sense, and who should (and would) pay for it?

(Ringer illustration)
(Ringer illustration)

Steve Jobs saved Apple, but it was Tim Cook who made it the most valuable public company in the world. When Cook arrived at Apple in 1998 as senior vice president for worldwide operations, his job was to fix the company’s woefully inefficient supply chain. The new iMac, Apple’s first hit product in years, was being built in the Sacramento suburb of Elk Grove, California, where the company had opened a manufacturing plant in 1992. Cook outsourced iMac production to LG Electronics, a Korean firm, as part of a broader plan to improve the company’s sloppy inventory management. In 2004, Apple shuttered its last American manufacturing line in Elk Grove, and its stock began its ascent to the top of the S&P 500.

Twelve years later, Cook faces a vocal and powerful critic of his cost-cutting measures. President-elect Donald Trump has promised to bring manufacturing jobs back to America, and he has made Apple and its legion of Chinese subcontractors a regular target of his corporate ire. “We’re gonna get Apple to start building their damn computers and things in this country, instead of in other countries,” he said in January. He continued to harp on the point throughout the year, culminating in a face-to-face meeting with Cook and a host other Silicon Valley executives at Trump Tower two weeks ago. The main item on the agenda? U.S. jobs.

Trump is not the first politician to try to convince Apple to build an American-made iPhone. Barack Obama famously asked Steve Jobs why his company couldn’t build its flagship device here, according to The New York Times (Jobs’s alleged response: “Those jobs aren’t coming back”). And Bernie Sanders didn’t spare Apple during his fiery campaign that vilified corporate greed. Apple serves as an effective political stand-in for our modern economy writ large: thriving by many statistical measures while generating increased wealth for seemingly everyone but the average American worker.

While Apple does solicit some parts from American suppliers, there are several reasons the iPhone has never been fully built and assembled in the United States. Most iPhone parts are made in Asia, so centralizing assembly in China lowers shipping costs. Chinese workers earn lower wages, boosting Apple’s profits. Most importantly, those workers can be hired and applied to projects at a scale and speed tech executives say is impossible in the U.S. “You can take every tool and die maker in the United States and probably put them in a room that we’re currently sitting in,” Cook told 60 Minutes in a 2015 interview. “In China, you would have to have multiple football fields.”

None of these factors means that Apple couldn’t make an iPhone here. The company could hire American workers who would earn higher wages and probably work shorter hours than their Chinese counterparts. Building iPhone components and assembling the device in the U.S. would add between $65 and $100 to the cost of the iPhone, according to multiple estimates. But it’s not clear whether Apple or its customers would really be willing to swallow that additional cost.

In surveys, consumers tend to say they would pay more for goods that are ethically produced, or for political reasons. For example, more than 60 percent of people in a Consumer Reports poll said they’d pay 10 percent more for made-in-America products.

But that’s in theory; in practice the numbers may not be so high. In a 2006 study about ethical buying habits, researchers sold two different pairs of athletic socks at a department store in a working-class suburb of Detroit. One pair of socks bore a label saying it was made without the use of sweatshops and had a price premium of up to 40 percent. About one-third of shoppers were willing to pay more for the sweatshop-free socks. Also, according to interviews the researchers conducted with these shoppers, the “made in America” label wasn’t the most important factor in ethical purchasing decisions. These consumers were more concerned with sweatshop-free working conditions, not using child labor, and paying workers a living wage, regardless of the location.

Of course, persuading someone to shell out extra cash for an already-expensive iPhone is probably tougher than upselling a pair of socks. With a $100 markup, the baseline iPhone 7 would cost $749. But a made-in-America smartphone would be a unique offering in a crowded market. “There is not a single cellphone that anybody owns right now that’s made in the United States,” says Ian Robinson, a sociology lecturer at the University of Michigan and one of the conductors of the sock study. “If you were the first one to do that, you would get a chunk of the market — not just individuals, but also companies and organizations. Unions would say, ‘We want to support stuff that’s made in the United States.’”

Studies have shown that iPhone owners are more affluent than other smartphone owners, but that doesn’t make them more likely to spend more for made-in-America goods, according to Robinson. “Attempts to see whether there is a correlation between what your income or education level is and how likely you are to be an ethical consumer have not yielded any clear results,” he says. “If richer people and more educated people have the extra money to buy iPhones, it doesn’t make them more or less likely to be ethical consumers.”

Of course the extra expense of a made-in-America iPhone wouldn’t have to come directly out of customers’ wallets. The iPhone 7 has a manufacturing and assembly cost of $224.80, while retailing for $649, according to the Wall Street Journal. Apple generated more than $9 billion in profit in the most recent quarter, and it has a cash hoard of nearly $238 billion. “Apple’s making such extraordinary profits that of course it could afford to do this and would not go out of business,” says Robinson. “They could just absorb the cost and be a good citizen.”

But even if human beings sometimes make spending decisions that are not solely in their own economic interest, corporations are ruthlessly rational. Apple generates 40 percent of its sales in the Americas (less in the United States specifically) and believes China will eventually be its largest market. A third of the tech giant’s employees reside outside the United States. Apple sees itself as a global company that happens to be headquartered in the United States. Or, as an anonymous Apple executive put it to The New York Times in 2012: “We sell iPhones in over a hundred countries. We don’t have an obligation to solve America’s problems. Our only obligation is making the best product possible.”

The “made in America” movement will likely find renewed vigor in the Trump era, researchers say. “It’s quite possible that Donald Trump has created a mass movement of very vocalized, very opinionated supporters who are going to act differently than politically minded consumers have acted in the past,” says Brayden King, a professor of management and organizations at Northwestern University. “If that’s the case, then maybe he will be able to influence them to support made-in-America products whereas it hasn’t worked in the past.”

(It’s worth mentioning that despite his tendency to talk about bringing jobs back to America, Trump is known for outsourcing his own products.)

Already Trump has used his new political power to give the impression that he can bend corporations to his will. Days after the election he claimed credit for convincing the chairman of Ford to keep an auto plant in Kentucky. Later he managed to fulfill a campaign promise by getting air-conditioner-manufacturer Carrier to keep some jobs at its Indiana plant. The fine details of these negotiations — the Ford plant was never actually closing, while Carrier is getting millions in tax breaks and will automate some of those saved jobs anyway — will never reach as many people as the initial headlines. A recent poll found that 60 percent of voters viewed Trump more favorably following the Carrier deal.

But Trump doesn’t actually have to negotiate a deal to influence a company’s fortunes — he just has to log in to Twitter. Both Boeing and Lockheed Martin saw their stock prices fall when Trump tweeted criticism of the costs of the new Air Force One and the F-35 fighter jet fleet, respectively. Research has shown that reputation-damaging media reports can have a negative influence on a company’s stock price. Trump’s Twitter account is a one-man media outlet that yields the same amount of power, if not more.

As a company whose fortunes are not bound up in massive defense contracts, Apple would be less susceptible to Trump bullying than a Lockheed Martin or a Boeing. But the tech giant also goes to great lengths to present itself as a benevolent and civically responsible business. And its underdog narrative — forged in a California garage by 20-somethings, pushed to the brink of extinction, then revived through a string of innovative products to create never-before-seen wealth — appeals to the American capitalist sense that hard work and ingenuity pay off. A rhetorical battle with Trump over whether Apple’s business practices are “un-American” is not in the company’s interest.

Yet it feels as if that’s the path we’re heading down, assuming iPhone production remains mostly overseas. The actions of corporations are increasingly being ascribed political heft. That’s why Breitbart readers flushed their Rice Krispies down the toilet after Kellogg stopped advertising on the site, and why Delta Air Lines flyers threatened to dump the company after a disruptive Trump supporter was not removed from his flight.

An environment in which all corporate decisions are politicized ultimately grants even more influence to the politicians. Apple’s goal right now is probably not figuring out how to produce the iPhone in America — it’s how to avoid angering Donald Trump to the point he starts a concerted media campaign against the company or blows up its business model with a huge tariff on Chinese imports. “There’s a reason why companies are starting to get really nervous about coming out and saying anything negative regarding Trump,” says King. “Somebody like Donald Trump, who has a ton of Twitter followers, can disproportionately affect people’s opinions or perceptions about a company. Even if it’s not based in reality, him just tweeting something about that company can drastically affect its reputation.”