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China Needs Apple in its Trade War With the U.S.

Alex Webb

(Bloomberg Opinion) -- Given the U.S.-China trade war, one might think that Apple Inc. contravening Chinese labor laws would provide just the ammunition that Beijing needs to crack down on the tech giant.

Yet there are good reasons why China might prefer not to crack the whip too fiercely on the iPhone maker. Apple plays an important role in the local economy, but amid the rising tensions with President Donald Trump’s administration, the Cupertino, California-based firm has another significant role: as a quasi proxy, lobbying in Washington, D.C. for interests similar to China’s.

Trump has introduced or threatened tariffs on $300 billion-worth of Chinese imports. In response, China has targeted U.S. farmers with retaliatory tariffs. So far, Apple largely has managed to stay out of the firing line of Chinese authorities, even as its local sales have struggled.

Much of Apple’s manufacturing is in China, so tariffs there are off the table. But there are other steps Beijing could take to make the U.S. company’s life difficult.

Take the experience of some of South Korea’s biggest firms. The likes of Samsung Electronics Co., Hyundai Motor Co. and LG Electronics Co. are all moving production out of China after facing heightened local competition and regulatory headwinds, according to Nikkei. A spat over Seoul deploying a U.S. missile-defense system spurred Chinese boycotts of South Korean companies. That prompted Seoul-based supermarket chain Lotte Mart to sell its Chinese operations.

The nature of Apple’s most recent transgression would seemingly make it easy for China to justify retaliation. Foxconn, Apple’s biggest contract manufacturer, used too many temporary staff at the world’s largest iPhone factory in Zhengzhou, China Labor Watch said in a report.

They represented about 50% of the workforce in August, the non-profit advocacy group said; Chinese labor law limits temporary workers to 10% of the total.

The millions of jobs that Apple, Foxconn and other contract manufacturers and suppliers support in China have meant that any crackdown on its products would negatively impact the local economy. Employing a higher-than-permitted proportion of seasonal staff weakens that argument. The less the economic benefit, the easier it is to warrant making Apple’s life harder.

But Apple’s lobbying prowess also has a corollary benefit for China.

I’m not suggesting that Apple Chief Executive Officer Tim Cook is working in cahoots with Beijing. Goodness knows his firm has endured its share of difficulties there. In 2016 it had to shutter the iBooks Store and iTunes Movies, and a year later was ordered to remove hundreds of VPN applications from Apple’s Chinese app store.

The reality is simply that, when it comes to trade, Apple’s interests often (though by no means always) align with China’s. It has spent a decade cultivating a complex supply chain across the country’s coastal regions, and lists more than 350 Chinese production facilities as suppliers. In 2017, it said it has “created and supported 4.8 million jobs in China.” The imposition of higher tariffs damages both China and Apple. It would take a decade or more to replicate the Chinese operations in Vietnam, India or Indonesia.

Cook’s value as a lobbying proxy was demonstrated at a dinner with Trump just last month. The president said Cook had made a “good case” that tariffs would handicap the company  in its competition with Samsung, whose smartphone manufacturing is more globally distributed.

The president had already delayed until mid-December a 10% tariff class which would have affected the iPhone in the crucial Christmas shopping season. The stay of execution affected toys and laptops too, providing a wider benefit to the Chinese economy.

Apple said that its own investigation subsequently established that the percentage of temporary workers at the Zhengzhou plant also exceeded its own standards. But with provincial governments so dependent on the firm and its suppliers for local jobs, and the company’s clout in D.C. benefiting the national government, they have limited incentives to impose swingeing punishments.

To contact the author of this story: Alex Webb at awebb25@bloomberg.net

To contact the editor responsible for this story: Stephanie Baker at stebaker@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Alex Webb is a Bloomberg Opinion columnist covering Europe's technology, media and communications industries. He previously covered Apple and other technology companies for Bloomberg News in San Francisco.

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