Trump Offers Tax Break to Apple to Build in US

Apple could potentially pay zero taxes if it agrees to abandon production facilities and partners in China and relocate to the US, President Donald Trump tweeted at the weekend.

The latest round of presidential tweeting came after Apple's warning that tariffs on Chinese goods would drive up the cost of products such as the iPhone. Apple Inc. (Nasdaq: AAPL) relies heavily on Taiwanese contractors like Foxconn, whose factories in China crank out components used in the iPhone. Foxconn's share price dropped 3% on Monday after Trump urged Apple to move production to the US.

In a tweet sent on September 8, the US president wrote: "Apple prices may increase because of the massive tariffs we may be imposing on China -- but there is an easy solution where there would be ZERO tax, and indeed a tax incentive. Make your products in the United States instead of China. Start building new plants now. Exciting!"

These are worrying times for technology companies that rely on complex, international supply chains to build and assemble their products. Trump's administration is moving ahead with plans to impose tariffs of as much as 25% on Chinese imports worth about $200 billion annually, and has threatened measures against the full range of Chinese goods sold into the US. These tariffs could drive up costs for a host of companies that sell equipment in the US market, and not just Apple. (See Blond Buffoon a Worry for Telecom Vendors.)

But it is the world's biggest company by market capitalization that came under scrutiny at the weekend after its own warnings about the impact of tariffs and Trump's Twitter response.

The promise of a tax break seems unlikely to sway Apple. Building new factories and using workers in the US to make and assemble components would entail huge investments and a radical break with the existing supply chain and business model.

For all the latest news from the wireless networking and services sector, check out our dedicated mobile content channel here on Light Reading.

Even if the costs were manageable, it is far from obvious that US consumers would benefit from any tax breaks offered to Apple. Critics in some jurisdictions already think technology giants have paid too little in tax in recent years. Despite this, the prices of Apple's flagship products have continued to rise.

On the networks side, the US has effectively blocked Huawei Technologies Co. Ltd. and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763), China's two main equipment makers, from selling gear to its largest service providers. Coupled with the US enthusiasm for next-generation 5G technology, this largely explains why European rivals Ericsson AB (Nasdaq: ERIC) and Nokia Corp. (NYSE: NOK) have been far more bullish about their North American business than opportunities elsewhere.

Even so, both Ericsson and Nokia use production facilities in China and could feel the effect of any tariffs that are extended to cover additional goods.

Perhaps concerned about the impact of such tariffs, Ericsson said in August that it would start to make 5G equipment in the US market this year. The move, presented partly as a way to better address customer needs, includes plans to recruit another 80 design staff, 200 software developers and 100 experts in artificial intelligence. (See Ericsson Ramps Its 5G Activity in US.)

— Iain Morris, International Editor, Light Reading

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