Advertisement

Trump’s response to Apple’s tariff-driven price hike shows how clueless he is about economics

"Start building new plants now. Exciting!"

WASHINGTON, DC - SEPTEMBER 8: U.S. President Donald Trump boards his motorcade at the White House on September 8, 2018 in Washington, DC. The president is heading to Trump International Golf Club in Sterling, Virginia. (Photo by Chris Kleponis - Pool/Getty Images)
WASHINGTON, DC - SEPTEMBER 8: U.S. President Donald Trump boards his motorcade at the White House on September 8, 2018 in Washington, DC. The president is heading to Trump International Golf Club in Sterling, Virginia. (Photo by Chris Kleponis - Pool/Getty Images)

On Friday, Apple announced that in response to the $200 billion in tariffs that the Trump administration plans to slap on Chinese goods, the company will raise prices on a number of products, including the Apple Watch, AirPods and Apple Pencil.

“Our concerns with these tariffs is that the U.S. will be the hardest hit, and that will result in lower U.S. growth and competitiveness and higher prices for U.S. consumers,” the company said in a letter to the U.S. trade representative. “Tariffs increase the cost of our U.S. operations, divert our resources, and disadvantage Apple compared to foreign competitors. More broadly, tariffs will lead to higher U.S. consumer prices, lower overall U.S. economic growth, and other unintended economic consequences. As a result, tariffs will ultimately reduce the economic benefit we provide to the United States.”

On Saturday, President Trump responded with a tweet in which he made it sound like the problem has an easy solution — Apple should simply relocate all of its production to the U.S.

Advertisement

“Apple prices may increase because of the massive Tariffs we may be imposing on China – but there is an easy solution where there would be ZERO tax, and indeed a tax incentive,” Trump tweeted. “Make your products in the United States instead of China. Start building new plants now. Exciting! #MAGA”

In fact, a number of components Apple uses for its products are already made in the United States, before being shipped to China and assembled at Chinese factories.

“It’s not true that the iPhone is not made in the United States,” Apple CEO Tim Cook said in March. “We have always made the parts here. People just look at where the final product is assembled.”

Advertisement

The reason it makes economic sense for Apple to assemble its products in China is because workers there are paid much less than they would be in the United States. As of 2016, workers at the Pegatron iPhone factory in China reportedly made as little as less than $5 per hour. The federal minimum wage in the U.S. is $7.25.

So if Apple were to seriously entertain Trump’s proposal, the company would have to reckon with a massive increase in the cost of manufacturing its products. That cost increase would make Apple less competitive with other gadget manufactures, while increasing costs for American consumers.

Trump’s trade war has already created inflationary pressures. As Business Insider detailed, the price of consumer applications shot up after Trump announced tariffs on washing machines in January, and many other examples since then could be cited:

Since the Commerce Department’s recommendation to impose steel tariffs came on February 16, the price of steel has soared. According to CME Group, the cost of US Midwest Domestic Hot-Rolled Coil Steel — a proxy for domestic steel prices — jumped from $694 just before the recommendation to $907 on Thursday, a 30% increase…

Canadian lumber tariffs were first imposed in April 2017, with additional rounds coming later in the year. The price of lumber used in housing has jumped and is starting to filter down to homebuyers. The National Association of Home Builders, the largest US industry group, warned in April that these tariffs were putting a cost squeeze on builders and making new homes pricier.

Despite Trump’s repeated boasts about how America is currently enjoying the alleged “greatest economy in the history of our country,” wage growth didn’t keep up with inflation over a one-year period ending in August.

Advertisement

When he’s not making overly simplistic suggestions to American companies negatively impacted by his tariffs, Trump has literally begged them to do what he wants. During a speech in June, Trump — who loves to brag about his deal-making skills — shamelessly pleaded with Harley-Davidson to reconsider moving some of its production from the United States to Europe, a move the company said was necessitated by Trump’s trade war.

“Harley-Davidson, please — build those beautiful motorcycles in the USA, please, okay? Don’t get cute with us. Don’t get cute,” Trump said. “They don’t realize the taxes are coming way down. They don’t realize that yet. I’ve spent a lot of time with them. Build ’em in the USA. Your customers won’t be happy if you don’t, I’ll tell you that.”