The end of globalization is accelerating as the iPhone company, Apple (AAPL), has indicated to close sources that they no longer wish to manufacture products in mainland China.
If many might remember, it was Apple CEO Tim Cook who often visited China for a victory lap while simultaneously keeping his mouth shut about the atrocities occurring in the Muslim region of China.
Not only that, zero covid policy in China has served as a political stage for something that appears much more insidious brewing in the Middle Kingdom.
Cook and many other multinational CEOs, selling out their own country, might have finally realized that doing business in totalitarian countries is a bad idea.
Starbucks even shut down in Russia.
There are network costs and brand damage that are hard to recover from.
Truth be told, Apple laughed all the way to the bank with this China arrangement, and their stock price is an indication the strategy worked like clockwork.
Well, it works until it doesn’t.
China was also a great place to live, until it’s not.
Also, China was a great place to manufacture cheap products, until it’s not.
That’s what happens in a country that presides over arbitrary laws which in fact means that the country has no laws.
Now Chinese residents are locked up with robot police dogs barking out orders to stay inside from the street.
What does this mean for Apple’s stock?
Short-term lower if interest rates continue to rise, but very positive long term.
Also, Apple’s equipment might not secure a proper “exit visa.” We also left our military equipment in Afghanistan too.
At least Tim Cook wasn’t locked inside an Apple factory in China like some American CEOs in the past.
At a product level, Apple phones will become more expensive because Apple won’t be able to ignore worker rights and pay them peanuts in producing these shiny gadgets.
Materials will also be harder to source in large quantities.
Remember, China has access to nickel and cobalt.
If they are able to produce in a poorer country like Cambodia, there are transitional costs along with slippage costs.
China’s Foxconn and Pegatron facilities will suffer the fate of many other trade war pawns and I believe this is the end of offshoring for America inc.
Here's another idea, get Foxconn to build an Apple factory in Phoenix and deliver work visas to the best Chinese workers.
Tell them they don’t even need to sleep on the factory floor and don’t need to work 14-hour shifts too. They would take the next plane to the desert.
Apple production partners like Foxconn have already established facilities in India to help produce iPhones for the domestic market there. A further expansion would see iPhones made in India and then exported for global sale.
However, is India sustainable as well? They banned wheat exports to the chagrin of the American government and even worse, they refused to ban Russian energy.
India’s behavior suggests they are working for themselves and not for Ukraine which can be perceived in many coastal American cities as undemocratic.
Either way, Apple’s stock is around 22% from its highs and that’s a victory when we consider stocks like Amazon (AMZN) are down around 45%.
Even if Apple’s stock sustains 30% losses at the time the US Fed starts to lower rates, possibly in 2023, then I would also consider that a resounding success.
Long term, manufacturing in America makes sense not only politically, but economically.
Automation is getting that good too which will soften the blow.
Apple does $365 billion in sales and the natural growth rates suggest it will break half a trillion in sales in 3 years.
However, if Apple wants to do $1 trillion of annual sales, they are going to have to produce the literal iPad on wheels, the Apple EV.
If Apple can pull off an Apple EV while maintaining the high level of quality they are known for, they are guaranteed to clock $1 trillion per year in sales no questions asked meaning the stock should go to $300 per share.
