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Apple in Trumpland: How the new administration could upend Apple’s business

Andrew Cunningham
Tim Cook (right) looks engaged and enthusiastic sitting next to President-elect Donald Trump and Peter Thiel at Trump's tech summit in New York City last month.
Apple has a busy 2017 ahead of it. Most credible rumors say the company is launching a revamped iPad lineup in the early part of the year, as well as long-anticipated desktop Mac refreshes. We can always expect a new iPhone in September, and you can bet that Apple will continue making the case for newer platforms like the Apple Watch and the Apple TV, too.
Most importantly, the company needs to return to year-over-year financial growth after a disappointing 2016. Last year, revenue fell for the first time since 2001, and Apple missed some of its own internal sales goals. Ordinarily, Apple’s success hinges mostly on the products it announced and those products’ quality. But 2017 has a new and unforeseen variable: President-elect Donald J. Trump.
Trump’s journey from dark horse candidate in a crowded Republican field to unlikely nominee to president-elect was powered by unending media coverage and harsh rhetoric. And much of his rhetoric was about American companies and jobs—chiefly, the desire that they bring manufacturing jobs into America and stop outsourcing them to other countries. Apple was a frequent target of Trump’s criticism on the campaign trail. This was the candidate, remember, who encouraged supporters to boycott Apple because of its encryption policies while also condemning the company for building its products overseas.
As one of America’s biggest companies, Apple will continue to find itself singled out by Trump. Apple provides a good case study for the ways in which Trump’s stated economic and trade policies could benefit and damage large, multinational tech companies. Those policies combine typical Republican orthodoxy about low corporate tax rates with Trump’s bellicose proclamations about import tariffs. Depending on the way things break, Trump’s policies are going to be a double-edged sword for Apple and any company that relies heavily on overseas manufacturing and the global economy.

Apple's jobs

In January of 2016, Trump proclaimed in a speech at Liberty University that he would “get Apple to start building their damn computers and things in this country, instead of in other countries.”
Since his election, Trump has backed away from or moderated his tone on some of the issues he brought up during the campaign, most notably his pledge to investigate and jail Democratic opponent Hillary Clinton for her alleged mishandling of sensitive information during her tenure as secretary of state and his stated desire to keep money out of politics (several of his cabinet appointees are major donors).
Trump has continued to focus on Apple in particular, though. In a conversation with New York Times editors and reporters in the days following the election, Trump claimed to have spoken to Apple CEO Tim Cook about building “a big plant in the United States” and about cutting taxes and regulations that would currently keep Apple from doing so (though he didn’t name any regulations in particular).
Apple manufactures most of its products with a pair of Chinese partners, Foxconn and Pegatron. And while human rights advocates and the press have long criticized the working conditions in these factories, the fact of the matter is that outsourced labor is nearly universal among gadget companies. Efforts to move this production to American shores usually fizzles out, as it did in 2013 when Google opened a factory for Motorola phones in Texas only to close it a year later.
In recent years, Apple has done a little experimentation with and research about American manufacturing. In 2012, some of its freshly redesigned iMacs were built in the USA, and, in early 2014, Cook publicly toured an Austin, Texas, facility that manufactured redesigned Mac Pros. Last month, news broke that Apple had allegedly asked Foxconn and others to investigate the costs of moving manufacturing to the US (keep in mind that “investigating” something isn’t the same as planning to act on the findings of that investigation). The vast majority of Apple’s manufacturing still happens overseas, as has been the case since Apple shut down its last Mac manufacturing line in Elk Grove, California, in 2004.
Whether Apple will move any significant portion of its manufacturing operations to the United States depends on the specific tax and regulatory benefits a Trump administration can deliver. Tim Cook got where he is by managing Apple’s costs, and Apple’s shareholders are unlikely to put up with any changes that cut too deeply into the company’s revenue. A recent New York Times report highlighted just how entrenched and complex Apple’s Chinese manufacturing arrangements are, and it also described how difficult and time-consuming replicating those arrangements elsewhere would be. Apple’s partners have received and continue to receive billions of dollars’ worth of help to build infrastructure, hire and train workers, and ship products around the globe. You can’t simply uproot that system and move it somewhere else. Trump’s policies may or may not account for this reality.

Repatriation and other taxes

Most of the stuff on this list is going to be about a Trump administration’s potentially negative impact on Apple’s bottom line, but Trump and the Republicans pride themselves on being good for businesses and tough on what Trump and GOP lawmakers call “burdensome regulations” and corporate tax rates.
Among Trump’s other tax-related promises is his plan to “lower the business tax rate from 35 percent to 15 percent and eliminate the corporate alternative minimum tax.” And while the Republican-led Congress doesn’t always see eye-to-eye with Trump, House Speaker Paul Ryan similarly lambasts the 35 percent tax rate and points out that “some of our foreign competitors are lowering their taxes rates on businesses as low as 15 percent.” If Trump aims to slash the corporate tax rate, he’ll have Congressional support for it.
For a company that makes as much money as Apple does—over $265 billion in 2016 alone, and more than $300 billion in 2015—any significant cut to corporate tax rates would be good for the bottom line. And for Apple in particular, Trump’s tax plan also promises a “one-time tax rate of 10 percent” for companies bringing money earned in other countries back into the United States. This is a drum that Tim Cook has been beating since well before Trump ever announced his candidacy, most notably back in 2013 when he was brought in front of the Senate to testify about Apple’s tax practices.
Cook said in September—well before the election, when Clinton was widely expected to win and maintain the Obama-era status quo—that Apple was tentatively planning on bringing its cash pile into the country at some point in 2017. If he can do it more cheaply under Trump than he could under Obama, expect him to jump at the chance or risk the wrath of his shareholders.
Apple in Trumpland: How the new administration could upend Apple’s business Reviewed by Chidinma C Amadi on 6:35 PM Rating: 5

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