Trump Lauds Apple’s Contribution to the US Economy Even as it Warns Against Tariffs
Apple (NASDAQ:AAPL) announced this week that it has spent a record amount of money in the US in 2018, supporting 9,000 American suppliers with $60 billion and in the process creating 450,000 jobs directly. It also adds that it is altogether responsible for supporting 2.4 million jobs across all 50 states, approximately 4 times the number of jobs attributable to the company just 8 years ago. Additionally, Apple claims that it is on track to directly contribute approximately $350 billion to the overall US economy by 2023.
Bold claims for sure but not outrageous considering that Apple made almost $54 billion in revenue in its most recent quarter (check our coverage out here). It’s important to remember though that Apple’s claims regarding the 1.9 million people in the US working on apps as part of what Apple calls the “app economy” are also working on apps for other platforms (well, platform, let’s be honest the only real alternative is Android).
President Trump had this to say regarding Apple and it’s clear that he’s keen to keep things on a positive note with one of the biggest stars of the US economy as well as the stock market which he measures his success as President by in large part:
Having dinner tonight with Tim Cook of Apple. They will be spending vast sums of money in the U.S. Great!
— Donald J. Trump (@realDonaldTrump) August 16, 2019
Apple’s Numbers – Not as Clear as They’d Like
It is interesting to look into though. Apple would clearly like to claim that the app economy is almost entirely its doing and while Apple definitely created the modern mobile digital market with the iPhone along with its App Store and is responsible for the majority of tracked app revenue vs Google’s (NASDAQ:GOOGL) Play store, there are some factors which serve to fudge the calculation slightly, including a huge one called Netflix (NASDAQ:NFLX).
Apple is quite a bit more rigorous about pursuing fees from apps which trade via its App Store and Netflix has generated about $1.5 billion through in app subscriptions on iOS, regularly coming in as the number 1 revenue generator for the App Store but the ability to sign up to Netflix from the iOS app was removed at the end of 2018, probably quite rightly since if I was Netflix, I wouldn’t want to sign over 30% of my fees to Apple just because a user had happened to sign up from the iPhone app as opposed to directly with Netflix.
Even so, the App Store is still about double Google’s Play revenue and that difference isn’t all going to be Netflix. It’s fair to say that Google probably cares less than Apple about aggressively monetising the Android user base, as well as the fact that Android has more than one app store like Amazon’s (NASDAQ:AMZN) and the ability to sideload apps such as Epic Games Fortnite which didn’t fancy forking over the cut of fees to Google, but Google obviously has its monster revenue driver of online ads to deliver on earnings whereas Apple is transitioning away from selling hardware into being a services company.
What It’s All About – The Trade War and Tariffs
Apple has been clear with both the President and the broader administration. It is against tariffs being imposed on China and has said that it will simply pass costs on to consumers which obviously contradicts the rhetoric the President regularly comes out with saying the Chinese are paying for the tariffs. Already this can be seen in numerous technology purchases with businesses now regularly seeing for example Cisco (NASDAQ:CSCO) equipment prices going up explicitly on invoices due to tariffs.
Apple is clearly doing what it can to promote itself as an all American company in light of the nationalistic sentiment which is sweeping the world in recent years and particularly the US following the President winning the election in 2016, but let’s be completely open here, Apple is doing nothing more than it should be doing and making as much money as it can and while doing that promoting its American qualities in light of a populace which is obviously pro its home country and has contributed in large part to getting the company to be one of the most valuable ones on earth.
Medium term moves to shift production out of China should the situation not change are probably being considered but a wait and see approach is likely given the amount of investment and partnerships Apple has in China and the amount of its supply chain which is geared up towards working with the country and the fact that there is an election coming in the US in 2020 which may pressure the President into making a deal with China to try to keep the market growing heading into the election. Additionally it should also be considered that both China and large companies such as Apple may wait to see what the outcome of the election is in case a less volatile negotiator occupies the white house in 2021.
As a final note, do keep in mind that efforts to move production of things like iPhones to the US is unlikely. Foxconn is still walking back its deal for a major plant employing 13,000 people in Wisconsin, now saying it is likely to hire 1,500 prompting state legislators to consider whether the $4 billion in incentives the state offered the firm should be renegotiated. If $4 billion dollars in incentives (over $300,000 per job with scaling going up to as much as $1 million!) isn’t enough to move production out of China and to the US, it’s unlikely anything is.
In the event of major fallout continuing in the trade war for an extended period, production would shift but would likely move slowly to other countries like Vietnam, Indonesia and other centres of low cost production. The onshoring of electronics manufacturing jobs to the US at this stage seems to be a pipe dream.
Apple is doing what it should be, making money in the most efficient way it can while making sure that its marketing machine is hitting the right points with its consumer base and political overlords. Major investment in the US isn’t particularly changing other than from the company’s organic growth.
Source: Apple Source