Apple could be facing a ban from President Trump on WeChat, which could decimate its iPhone business in China and aggravate a trade war that could heavily impact its manufacturing and import tariffs for nearly all of its products.

Apple could be facing a ban from President Trump on WeChat, which could decimate its iPhone business in China and aggravate a trade war that could heavily impact its manufacturing and import tariffs for nearly all of its products.

Trumps ban could have far-reaching consequences for Apple
Illustration by Alex Castro / The Verge
President Trumps executive order banning WeChat could have far-reaching consequences for almost the entire technology industry, thanks to the apps parent company, Tencent, having investments in companies like Riot Games and other US-based brands. But the ban could also have a big impact on Apple, which is deeply entrenched in China.
Apple has a significant Chinese customer base, and nearly all of its critical manufacturing and assembly partners are based there. Trumps ban might not only force Apple to remove WeChat from its App Store which would destroy Apples Chinese smartphone business it could existentially change how Apple is able to build and sell new products in the future.
Its hard to emphasize the prominence of WeChat China. As analyst Ben Thompson put it in 2017, There is nothing in any other country that is comparable, particularly the Facebook properties (Facebook, Messenger, and WhatsApp) to which WeChat is commonly compared. All of those are about communication or wasting time: WeChat is that, but it is also for reading news, for hailing taxis, for paying for lunch (try and pay with cash for lunch, and youll look like a luddite), for accessing government resources, for business. For all intents and purposes WeChat is your phone, and to a far greater extent in China than anywhere else, your phone is everything.
An iPhone without WeChat is effectively not a phone at all
An iPhone without WeChat is effectively not a phone at all for the hundreds of millions of Chinese users that rely on the service customers on which Apples entire iPhone business model relies. If Apple cant offer WeChat on the iPhone due to Trumps ban, then its Chinese business will almost certainly evaporate overnight.
Apple is caught in a trap of its own making here, thanks to its locked-down platform. A more open system, similar to Googles Android, would let users install WeChat without Apples explicit approval. It wouldnt be ideal for Apple, but at least millions of Chinese customers could still use their iPhones.
But the WeChat / Tencent ban could have an even more dramatic impact on Apple by escalating the ongoing conflict between the United States and China, which have been embroiled in a trade dispute for years. Apple has already started to feel the initial ramifications here: a 25 percent tariff on five parts for its Mac Pro desktops; 10 percent tariffs on its chargers, the HomePod, AirPods, and Apple Watch; a narrowly dodged 15 percent tariff on iPhones that could have raised the cost of Apples most crucial product by $150.
Apple physically cant outsource its manufacturing anywhere else in the world (and certainly not in the US). Then-COO Tim Cook led a 2005 shift to just-in-time manufacturing that cuts down on excess inventory and constantly pumps out new products. The result is that Apple today is almost exclusively reliant on Chinese manufacturers like Foxconn. Its so important to Apple that when factories shut down from COVID-19, it caused hiccups down Apples entire supply chain and may even have caused delays for the upcoming iPhone 12 lineup this fall.
While recent developments in India have attempted to lessen Apples need to exclusively build all of its hardware in China, its a drop in the bucket compared to what Apple builds in and therefore, would have to export from China.
Apple is caught in a trap of its own making
But the trade deal still hasnt been completed (President Trump has indicated in recent interviews that the second phase of the deal is no longer a priority for him), and the newest escalation by Trump in targeting one of the biggest Chinese companies in the world could irreparably damage those trade talks. Instead of getting a reprieve from those impending tariffs, Apple could be forced to bear the costs of all of them or face even higher import taxes should China escalate the trade war further in retaliation.
Thats all to say nothing of how important Chinas business itself is to Apple. As TheEconomist noted earlier this year, Apple made a total of $44 billion in China last year more than any other American company. Its already the third-largest contributor to Apples bottom line in the companys most recent Q3 2020 earnings, China accounted for roughly 15 percent of the companys revenue. And unlike Europe or the US, where Apples market share has been largely stagnant for iPhone and Mac adoption, China still has huge potential to grow for Apple, which only comprises around 9 percent of the total Chinese smartphone market (which is currently dominated by Huawei, Vivo, Oppo, and Xiaomi).
Its not just iPhone sales, either: Chinese customers spent $1.53 billion in April on App Store purchases alone, a number that doesnt even include other service revenue for Apple (like iCloud or Apple Music subscriptions), which is a key part of Apples ongoing business strategy.
Apples already been struggling with continuing that growth in China in recent years as phone sales have slowed, something that the shuttering of stores due to COVID-19 didnt help. (Apple actually had to issue a rare update for its investors that lowered the companys outlook because demand for our products within China has been affected by the virus.)
A stark reminder for Apple of how reliant it is on China
Most of Apples paid services like the iTunes Store, Apple Books, Apple TV Plus, Apple Arcade, Apple News Plus, and the Apple Card arent available in China either. Thats a big problem for Apple, which has started to look toward recurring subscriptions to make up for a steadily saturated iPhone market.
Apples success under Tim Cook has been largely built on its expansion into China, both as a manufacturing hub and a significant customer base. Trumps WeChat ban could strike at that once-solid foundation, with the potential to shatter one of Apples biggest bastions of customers and its ability to manufacture almost any of its products.
Even if this does all blow over, its a stark reminder for Apple of how reliant the company is on China. Its also a reminder of how easily the precarious house of its hyper-concentrated manufacturing hubs, App Store policies, and international business deals can fall apart and potentially, take a huge chunk of Apple down with it.
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