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Apple Says It Can Build iPhones Outside of China, but Can It?

Apple Says It Can Build iPhones Outside of China, but Can It?

If the U.S.-China trade war continues to escalate, one American tech giant reliant on Chinese manufacturing said it can move production elsewhere.

Apple Inc. said the primary sub-contracting manufacturer of its iPhones, Foxconn, can build the smartphones outside of China.

California-based Apple uses Taiwan-based Foxconn to assemble most of its iPhones and iPads sold internationally in China, but a new round of potential tariffs threatened by the Trump administration could put a crimp on business — and the company’s stock.

The American government is looking at new tariffs on nearly $300 billion worth of Chinese goods. That would be equal to an additional tax on any iPhone or iPad sold to U.S. consumers.

Hon Hai, principal of Foxconn, said it could spread out the production of the iPhone and iPad to other parts of the world, if the company deemed it necessary to do so.

“Twenty-five percent of our production capacity is outside of China and we can help Apple respond to its needs in the U.S. market,” said Young Liu, Foxconn board nominee and head of the company’s semiconductor division, to investors Tuesday.

He said the company is currently expanding its Apple production capacity in places like India, to meet sales demands. Foxconn is running quality tests for the iPhone XR in India and there are plans to start mass production at a facility near Chennai.

Foxconn also assembles older model iPhones at a plant in Bangalore.

Apple-AAPL

Shares of Apple were trading at $194.27 early Tuesday afternoon.

According to Bloomberg, Apple has not given any direction to Foxconn to start moving production out of China.

Foxconn was offered nearly $4.5 billion in subsidies to build a new plant in Wisconsin but, according to The Verge, the company has already missed its hiring goals for the end of 2018. Its goal was to hire at least 260 people by the end of December, but filings indicate the company employs just 156 workers.

Under the subsidy deal, Foxconn would stand to gain nearly $219,000 in incentives for every job created, provided it created the 13,000 jobs it promised by 2020. Those incentives would largely be cash payments from the state since the deal already exempts Foxconn from income and sales taxes.

The company said Tuesday it will meet the employment goals set in the Wisconsin agreement, stating they could hire as many as 2,000 by the end of 2020.

However, as the U.S.-China trade war continues, the strain on Foxconn could start to mount. While Liu was confident of the company’s ability to ramp up production if Apple moves out of China, the lag in employment in Wisconsin coupled with production elsewhere just starting up, it would be difficult for Foxconn to immediately make any production changes.

That could cause delays in delivery of iPhone or iPad products as Foxconn attempts to shift manufacturing to other facilities around the world.