The Trade War In Your Pocket

The Trade War In Your Pocket

We need to talk about the geopolitics of supply chains. Bear with me, here – this is an important story, and I’m going to explain why using the handy example of Apple’s iPhone. Over the weekend, Donald Trump went on Twitterto explain that if Apple wants to avoid the new tariffs his administration is preparing on billions of dollars of Chinese consumer goods, it should make its products in the US instead of China. “Start building new plants now,” the President said. “Exciting!”


If you’re one of the many readers out there reading Signal on your iPhone, you may have noticed the slogan on the back that says, “Designed by Apple in California. Assembled in China.” That isn’t just a clever marketing tagline, it summarizes an entire approach to running a modern technology business.

Supply chains are global: While Apple pays Silicon Valley types handsome salaries to design its phones and the software that runs them, it relies on 300,000 Chinese employees to assemble the final product with a level of precision and at a low cost that workers in the US can’t match. The phone itself is made of hundreds of component parts – some from the US and other countries, but also many sourced from factories and warehouses that have sprung up to serve a sprawling assembly facility in Shenzhen and the company’s “iPhone city” in Zhengzhou. Such intricately coordinated supply chains are what makes the iPhone and many other tech products affordable.

Going local is costly: Moving production of the iPhone to the United States wouldn’t just be a matter of building a new factory and putting up a “Help Wanted” sign. It would involve shifting an entire production ecosystem that has taken years to develop and fine tune. That would be expensive – not just for Apple, but for consumers who would pay higher prices for the company’s products.

That’s unlikely to matter to Trump, or more hawkish members of his administration who want to pull the US and China apart technologically and bring manufacturing jobs back to the US. Any day now, the administration is poised to hit China with tariffs of up to 25 percent on another $200 billion of its goods – and it’s threatening tariffs on $260 billion more. Combined, the tariffs would account for all of China’s exports to the US. If China digs in its heels, which seems likely, the two sides could be in for a long fight. Just the threat of an extended period of tariffs could force many tech companies to make tough decisions about relocating production – if not moving entire ecosystems, then at least trying to move parts of their supply chains to other countries, like Vietnam or Mexico. That, too, would come at a cost.

This is part of a bigger story: It isn’t just about phones, or encouraging US companies to make stuff in the USA instead of China. The Trump administration has been arguing in favor of barring Chinese technologies from the US and other Western countries, too, as a part of a broader struggle for control of the technologies of the future. The US, Australia, Canada, and Japan have already either effectively banned the use of Chinese networking equipment in their next-generation “5G” data networks because of concerns about national security, or are considering doing so. The stakes are high, because 5G networks are what will make driverless cars, smart cities, and other economy-changing technologies possible. The decisions that companies and governments make over the next few months and years about whose equipment to use, or where to locate new factories could have big effects on the relative fortunes of US and Chinese suppliers, and even how these innovations develop over the long term.

But long before those decisions are made, you’ll start to feel the effects of the US-China tech and trade conflict in your wallet.

Demography is destiny. That ominous-sounding pronouncement, credited to French philosopher Auguste Comte, is today taken to mean that a nation's fate depends on the youthfulness of its population. For a poor country to become rich, it needs lots of young people ready to work, to support those too old or too young to work, and to pay taxes. This is called the "demographic dividend."

That's an important part of China's success story. Over the past 40 years, more than one billion people have emerged from poverty in China. Waves of young people surged from the countryside into cities to work in factories. The state invested in education, and wages helped young workers, and then their children, go to school. The state also began a drive to develop the technologies of the future, by any means necessary. In China, once dirt-poor, hundreds of millions have created a middle class.

More Show less

Not everyone thinks that President Biden's decision to pull all US troops out of Afghanistan by 9/11/21 is a good idea. Conservative Congressman Mike Waltz (R-FL), a combat-decorated Green Beret with multiple tours in Afghanistan, thinks that the US still needs to maintain a small presence in the country to avoid incurring "massive risks." In a spirited discussion with Ian Bremmer on GZERO World, Waltz, who served as counterterrorism advisor in the George W. Bush administration, argues, "The next 9/11, the next Pulse Night Club, which is right on the edge of my congressional district, the next San Bernardino, that's now on Biden's watch. He owns it with this decision." Their conversation is featured in the upcoming episode of GZERO World, which airs on US public television starting Friday, April 23. Check local listings.

Vaccines are the best hope to end the COVID-19 pandemic. But rich countries are hogging most of the doses, with more than 83 percent of shots administered to date having gone to residents in high- and upper-middle-income countries. Most poor countries will have to wait years to achieve widespread vaccination, according to one study.

To address this inequity some stakeholders are pushing hard for waivers to intellectual-property (IP) rights through World Trade Organization trade rules so that manufacturers in poorer countries can make their own vaccines locally. India and South Africa have been leading the charge, which would essentially mean that deep-pocketed pharma companies like New York-based Pfizer, for instance, would have to hand over the keys to the kingdom, allowing local companies in New Delhi and Johannesberg to make generic versions of their vaccines.

Unsurprisingly, the debate has gotten fiery, with passionate arguments emerging both for and against.

More Show less

Carl Bildt, former Prime Minister and Foreign Minister of Sweden, shares his perspective on Europe In 60 Seconds:

What are the Russians up to against Ukraine?

We simply don't know, except the fact that they're concentrating a huge amount of military forces. And you don't do that for nothing or for fun. They are there for a purpose, to have pressure or to undertake limited to larger operations. We simply don't know. And when Putin delivered his State of the Union speech the other day, he didn't say a thing about this. They are now talking about withdrawing the forces. But let's wait and see. They have talked about withdrawing forces from Syria for a long time, but we haven't seen that as of yet.

More Show less

Australia rips up Belt & Road deal: Australia cancelled two 2018 deals signed between Victoria, Australia's wealthiest state, and the Chinese government, that committed the two sides to working together on initiatives under China's Belt and Road infrastructure development program. Foreign Minister Marise Payne said that the agreements "were adverse to our foreign relations." Similar deals between Victoria and institutions in Iran and Syria were also abandoned by the Australian government this week, under a 2020 law that allows Canberra to nullify international agreements struck at local and state level. (Australian universities say the "foreign veto bill" amounts to "significant overreach.") Meanwhile, Beijing hit back, calling the move "unreasonable and provocative," and accusing Canberra of further stoking divisions after a series of escalatory moves by both sides that have seen China-Australia relations deteriorate to their worst point in decades. Chinese investment in Australia dropped by 62 percent last year, a massive blow for Australia's export-reliant economy.

More Show less

50: The US will aim to cut its greenhouse gas emissions by 50 percent from 2005 levels by the end of the decade. The Biden administration's commitment, double the goal set by Barack Obama almost six years ago, was announced to coincide with a virtual Earth Day climate summit attended by dozens of world leaders.

More Show less

Russian president Vladimir Putin on Wednesday threatened an "asymmetrical, rapid, and harsh" response for anyone that dares to cross a "red line" with Russia.

What's the red line? Putin says he'll decide on a case-by-case basis. And the cases at the moment are growing: the US has sanctioned Russia over cyber crimes; Putin critic Alexei Navalny is near death in a Russian prison; the Czechs say Russia blew up a Czech munitions depot; and as many as 120,000 Russian troops are reported to be massing along Russia's border with Eastern Ukraine.

Which is to say: there's potentially a Sol Lewitt's-worth of red lines to ponder now.

Subscribe to GZERO Media's newsletter, Signal

The GZERO World Podcast with Ian Bremmer. Listen now.

GZEROMEDIA

Subscribe to GZERO Media's newsletter: Signal