Apple regionalized production trend unaffected by tariff spat: Analyst

Taipei, May 12 (CNA) Though the United States and China have scaled back their tariff tug-of-war, the trend toward regionalized manufacturing and diversification in the Apple Inc. supply chain is expected to stay unchanged, a Digitimes Research analyst said Monday.

Speaking with CNA, Digitimes analyst Chou Yen (周延) said Apple suppliers will likely feel relief at the reduction in U.S.-China trade tensions.

But while that may lead them to slow down the regionalization and diversification of their manufacturing operations in the short run, the longer-term trend will not be reversed, Chou argued.

The analyst's comments came after the U.S. and China announced earlier Monday that they have agreed to step back from their tit-for-tat escalation of "reciprocal" tariffs for an initial period of 90 days after two days of negotiations in Geneva over the weekend.

Under the agreement, Washington has cut tariffs on China made goods to 30 percent from 145 percent, while Beijing has reduced tariffs on U.S.-made goods to 10 percent from 125 percent.

The higher American tariff levels reflect a 10 percent baseline on all imports in addition to a 20 percent punitive tariff the Trump administration imposed earlier this year to punish China for what it said was China's spreading of fentanyl-related chemicals.

As trade tensions between the U.S. and China worsened in recent years, many manufacturers scrambled to diversify production out of China and move toward regionalizing manufacturing to roll out goods in places closer to their clients.

Helping the regionalized manufacturing concept take root has been that many major markets beyond the United States have decided to build their own supply chains, Chou said.

From an operational perspective, Chou said, Apple also needed to diversify its supply chain to better control costs and boost efficiencies.

An executive of a Taiwanese supplier to Apple who asked not to be named told CNA that he felt relieved for the time being after hearing the consensus reached by Washington and Beijing in Geneva.

"After hearing that the U.S. and China agreed to cut tariffs, the pressure to move production out of China quickly was suddenly reduced for now," the executive said.

Echoing Chou, however, the executive said many suppliers that not only assemble iPhones, but also other Apple products such as iPads, Macbooks, Apple Watches, and AirPods, will have to produce those gadgets in different regions to meet Apple's demands.

At an investor conference in early May, Apple CEO Tim Cook said his company will source most of the iPhones it aims to sell in the United States in the second quarter from India, while sourcing iPads, Macbooks, Apple Watches and AirPods for the U.S. from Vietnam.

Cook said, however, that China will continue to dominate the production of Apple products it aims to sell to markets outside the U.S.

IPhone assembler Hon Hai Precision Industry Co. has set up production hubs in India in response to Apple's request for diversification.

Hon Hai, better known as Foxconn globally, has also invested in Brazil for years, and Apple has aimed to source products in Brazil and sell them there due to tariff considerations, Chou said.

Production of Apple's gadgets in China remains the most cost efficient, and because the products rolled out there can still be sold to non-U.S. markets such as Japan and the European Union, Taiwanese Apple suppliers are unlikely to give up their China production bases, Chou said.