Why iPhone production isnt coming to the United States

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Apple is not the top seller of smartphones in the world — not even close. It does, however, have the vast majority of smartphone profits in the world with an estimated 90%. The margins on Apple’s hardware are so large that it can out earn OEMs that sell several times as many phones. There’s been a lot of talk about encouraging the manufacturing of electronics in the US with the incoming Trump administration, but is it even feasible to build an iPhone in the US? If Apple built them in the US, would that really create many jobs?

It is estimated that the iPhone 7 costs about $400 for Apple to produce. It sells for $649 in the US. A large chunk of the cost of making the phone has to do with getting components to the factories in China’s Zhengzhou region, a historically poor area that has been built up and perfectly tuned to churn out iPhones. This extreme specialization is one reason iPhone production would be very difficult to do cheaply in the US.

Analysts have pointed out that when you figure in the increased wages for a US-based assembly operation, the cost of building an iPhone might only rise by 5%. I think that’s an amount that many people would be willing to pay. However, that calculation ignores many of the logistical issues.

Foxconn

According to the New York Times, the Foxconn facilities in Zhengzhou can produce 500,000 iPhones per day. Foxconn has gotten to this point with the help of local government grants and subsidies totaling about $1.5 billion. The company has built huge facilities and employee dorms, and the government has added in infrastructure of its own. It laid down new roads and even built an airport just a few miles away from the factory to streamline the exporting process. It’s not unheard of for municipalities in the US to offer incentives to businesses that want to expand, but nothing on this scale. Apple has a sweet deal in China that it simply wouldn’t get in the US.

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