Next US-China battle coming – in production?

News that Apple is looking for ways to move 15-30% of its production capacity outside China is worthy of attention, if only because the company is so big. Many others are doing the same. Whirlpool, Black and Decker, Intel, and Steve Madden are just a few of the names mentioned in a Fox News article as looking to move to Vietnam, Cambodia and elsewhere.

There are two ways to look at such headlines. One is that companies that move production out of China because they can’t afford not to are the kind of companies that China, and especially the Greater Bay Area, were inevitably going to have to wave goodbye to. These are sooner-or-later moves which are happening sooner than China, perhaps, would have liked.

The second way to consider such headlines is that there are other companies, such as Apple, that should know better. These are highly profitable companies that are, in the eyes of the Chinese government, prepared to sacrifice Chinese jobs for the sake of affluent American consumers after their own president put them between a rock and a hard place.

It makes reasonable business sense to not have all of one’s eggs in a single basket, as Apple realised it had. But as they teach at Harvard Business School as well as at Karl Marx University, everything in business, as in life, is about timing. Shuttering production lines in China at this moment in the US-China trade war would be highly likely to invite retaliation from Chinese authorities. And who could blame them?

Well, a lot of people could, unfortunately. This is bound to be an issue where the difference between the two civilizations’ views and values comes to the fore. Apple may feel justified to say the decision is “just business”. But that won’t likely come across well to cadres whose jobs are, No. 1, to maintain social stability and, No. 2, to maintain social stability. There is no No. 3.

While the world waits and hopes for an easing of the trade war when Presidents Trump and Xi meet in Japan at the end of the month, nervous investors in the meantime ought to prepare for the next big battle. We would not be surprised if that will be fought over how China treats US companies with production operations inside the country that also sell into the domestic market – the sales numbers for which are not included in the US-China trade balance. Stay tuned.

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