How iPhones Built A Superpower With Patrick McGee

So good to be here, Liz. Thank you.

I joke that the book idea came out of the failure to cover Apple well as a reporter covering it for four years, rather than the success. And I, you know, I mean, I'm saying it as a little bit of a joke, but it was true. I found Apple a really difficult company to cover, namely because they're really controlling of their narrative. And I guess I'm not really interested in like gadget reporting. I would think most Apple reporting is the covering of gadgets, right? What's the next product gonna look like? How does it work? That sort of thing. And I was interested more in like how the sausage gets made, right? Right. And so, I mean, essentially it's overdetermined, there's three or four different origin stories for the book. And so I'm always trying to think of which one do I tell. But one of them is that I was profiling Cristiano Amon, the CEO of Qualcomm, and I was asking him for some anecdotes, right, some stories. And he was telling me about being in Taipei for 14 days of quarantine during COVID trying to get to the fabs where their chips were manufactured by TSMC. And I was like, right, but you're not a fab company. You just design the chips, so why do you have to go to the factory? And he said, well, because we follow the Apple model. I had been covering Apple for three years. And I remember thinking like, what's the Apple model kind of thing. And so I think he was the first person to explain, probably in the briefest sense, well, Apple doesn't just outsource, right? They take huge control over their supply chain and they're there sort of at all hours, you know, making sure everything is up to speed. And then so maybe he didn't say too much about it, but then I just began looking on LinkedIn and so forth and I quickly came across the position manufacturing design engineer. And these are the team of, you know, more or less American engineers who travel around to factories around the world, but increasingly with time just to China. And they're the ones who are sort of teaching engineering 101, installing machinery on the production process, even using proprietary software that's on the machines and really training the capabilities rather than finding the capabilities in China. And the more I looked into that and the more I talked to those people, the more I realized I didn't have a story about how Apple makes products today. I had a whole narrative, or at least there was potential for a whole narrative as to how they even got into this. 'Cause of course, Apple famously made their own products for the first 20 years of their existence. So it, you know, getting all the sourcing was the most difficult thing in the book by far. But it was pretty easy to figure out this hasn't been covered and Apple's such an iconic company that if I can figure out some narratives and people around this, people are gonna be interested in the narrative and I would be interested in the narrative.

Wow, the book world's so small, I don't know about millions, you know, maybe with the documentary or something.

Yeah, actually, when I say more than 200, I'm exclusively counting the people that had Apple experience. Okay. I spoke to other consultants and stuff and I don't actually account them. So I don't know what the full number is for the tally of the book. You know, I suppose some of it is just the longer time it was ago that someone worked at Apple, the more likely it is that they no longer care about their NDA or they just don't think it's relevant, right? If you're giving up the secrets as to how to do the plastic injection molding for a computer in 1999, the likelihood that Apple's gonna come after you or that Samsung's gonna use that knowledge to their own abilities, whatever, is pretty slim. So in a certain sense, I was just doing the lazy historical thing of looking chronologically, probably not aware of what I just said, that if you're talking to people in the eighties and nineties, they're more open to speaking. But then as you sort of build a foundation of knowledge and a foundation of people, you're able to then sort of break into new sources and sort of bring it closer and closer to the present over the year off that I took to write. In other words, if I talked to someone in 2005, if I just had them on the phone for a few minutes, it was really easy to show them that I was taking the issue really seriously. I wasn't writing a hit piece and I'd already spoken to people that might've actually been their bosses or more senior people on the team or whatever. And so the knowledge just sort of compounded with time. What was difficult, I suppose, is that the book doesn't just tell a supply chain story. It sort of starts there and then it changes into the retail industry in China, right? Which is just like a totally different geography. It's a totally different set of sources. Apple's pretty siloed. So if you're in operations, the chances that you know anything about the retail operations are pretty slim and vice versa, right? But across like eight different things within Apple. And then it goes more into the Chinese, or sorry, maybe I should say the political dimension within China, right? And again, that's a different set of people as well. So I say it compounds, but I'm maybe simplifying how easy it was to sort of build and build because I sort of kept changing, you know, what the topic of the book was.

So I guess it's worth knowing that, I mean, the only reason Apple even gets into outsourcing and offshoring is complete financial desperation. The company is almost bankrupt in 1996, 1997. And again, in 2000, especially when Steve Jobs comes back, he wants to be making their own computers. It just gets to a stage where they literally don't have the balance sheet to support it. And when they do come up with the Bondi Blue iMac, they can do the enclosure, you know, the shell of the computer, but they don't have any experience building a CRT, a cathode ray monitor. And so they turn to LG. And so LG is their monitor provider, not a contract manufacturer, but Apple has such swagger that they just sort of turn this company that's not a contract manufacturer into one. And then they actually have LG sort of operate on three continents to sort of replicate what Apple had been doing for two decades. So, I mean, that's one inflection point, and it's just worth knowing that Apple is not early to outsourcing. They are late to outsourcing, but they just sort of figure out something better than anybody else. And the whole idea of you build the competence in the factories, I think is pretty novel. I mean, certainly the degree of minutiae that Apple went after, totally novel. Usually you come up with a product, you design it, and there are capable factories willing to do the work, and if they can't do the work, then you designed it wrong, right? There's something called DFM, designed for manufacturing. And the idea would be that from the earliest days of doing the blueprints, you're figuring out things that are possible on the manufacturing floor. Apple basically threw out DFM and said, we're gonna build things or we're gonna design things sort of however the hell we see fit. And then we're going to figure out later how to build them. And if people don't know how to build them, we'll train them how to build them. So what's interesting about that narrative is there's a seven year period from 1996 to 2003 where Apple is barely in China, they're in like nine different countries. You know, Korea, Singapore, Taiwan, Taiwan being the most important, really coming up with this model. So I'm pointing this out because it's not really like China and Apple together figuring these things out. And even when Apple does start manufacturing computers in 2000, but before they consolidate, it's not really China, it's Shenzhen, right? And obviously Shenzhen's in China, I'm not saying it's not obviously, but it's a totally different set of frameworks and legal policies and outlook and mindset and all sorts of things, right? So the meet cute moment, if you will, is a normal bankrupt company and a particular jurisdiction within China. It's not really like Apple as like the multi-trillion dollar company that we think it is. And it's certainly not China in terms of a superpower. So that's really interesting. And then I give all sorts of credit to Terry Gou and Foxconn. Yeah. And in particular the Taiwanese entrepreneurs who play a massive role, even one that Xi Jinping has acknowledged, in really building up the capabilities and the sort of super industrial clusters that China has in multiple jurisdictions. So Terry Gou is in my narrative really the first person to realize that working with Apple is really complex and while his Taiwanese compatriots don't want to work with Apple because they don't like how Apple engineers breathe down their neck and sort of are obsessive about little details, Terry Gou understands, and I know this sounds like a high school poster, the challenge is the opportunity.

And that by taking on Apple as a client, even though they're tiny volumes, right? This is two or three percent of the market and they already are supplying to places like Compaq or Dell, they can learn so much from them. And if they can please Apple, they can please anybody. 'Cause nobody's making the same sort of demands. So Terry Gou slash Foxconn, major inflection point for Apple. And then, you know, I have a couple chapters where they're building products out Taiwan, and essentially it's a bit of a disaster and it's a disaster at a time when, you know, the iPod is not a major success. I mean, the iPod was a major success in terms of its design, but it takes several years before it's actually a well-known product or well purchased product. And it's because Steve Jobs made it open to the PC market, right? For the longest time he was hoping that it was like the luring thing that you would wanna buy. And if you didn't have an iMac, you would go buy an iMac just to make it work for the iPod. It's sort of a bizarre boneheaded strategy. But they do that for two years before they eventually change tack and Foxconn again makes this big bet to work on what becomes the iPod Mini, and then we're off to the races. But essentially the iPod, the iMac G4 can't really be made at the volumes and at the sort of sophistication that Apple needs it in Taiwan. And so the factories, the Taiwanese are saying, well, why don't we go replicate this in China? And that just works so well that eventually Taiwan just is removed from the equation and it's not a replication strategy, it's a let's do a greenfield site in China. And that just works so well that by the time you get to the iPod Mini, the iPod nano, it's clear that Foxconn's gonna be the partner for the iPhone. And then the iPhone is obviously its whole other narrative where you go from 5 million units in 2007 to 230 million units by 2015, and that requires hundreds of suppliers. Not all of them are in China even today, but most of them aren't in China in the early years. But as you get into those volumes, Apple has every incentive to have everybody from around the world set up their production in the same industrial clusters to make everything smooth and to not have to deal with customs and tariffs and all sorts of things. So that would be the other major inflection point.

I think he's the Henry Ford of Asia. I mean, absolutely.

So there's a couple things going on. So one, I would say, let's say thought experiment, you're Xi Jinping's lawyer, and he comes into power and he is like, I don't like this Apple company, the case against Apple that they're an exploitative company looks pretty strong. I'll argue why it's maybe not that strong in a minute, but there's this chart that I use in presentations that shows how in the first four years of the Apple Foxconn relationship, so 2000 to 2004, Foxconn makes more margin than Apple, which is kind of astonishing, and makes more absolute dollars, right? Not just with Apple, but writ large. So like Foxconn is actually the larger company here in those two key respects. And then things begin to really take off, right? And by 2012, so the year that Xi Jinping comes into power, Apple's margins in a decade have gone from 1% to 26%. These are their net margins. By the way, Foxconn have gone from double digits to about 2.5%. So this is what I end up calling the Apple squeeze, that in a sense, there's like an iron law, you know, something like Moore's Law where the equivalent, or I'm sorry, the more closely you work with Apple, the lower your margins will be, they will just squeeze you here, there, everywhere. Understand the production processes and the costs better than you, they will disintermediate you from your suppliers to understand what the costs are so that the contract manufacturer doesn't have any sort of funny leverage. Contract manufacturers are famous for things like, it's called purchase price variance, where they'll say, Hey, we had to purchase such and such copper wire at a cost of, you know, a dollar a piece, but actually it was 60 cents a piece and they're just collecting that 40% margin. Apple would just sort of take control of that relationship down two tiers, three tiers, four tiers, so that the likes of Foxconn couldn't do that to them. Right? And that's why in a sense, you see the margins within Foxconn fall the more closely they work with Apple. So anyway, my point is that if you're Xi Jinping's lawyer, you would look at that and say, this company's just exploiting our companies, right? Because here's this massive success, but Apple's not sharing the wealth. And if you're already in the mindset of we want companies to be in China for China, it looks like Apple is exemplary of not really doing that. And there's some other issues I could go into, but I think that point is actually pretty strong. Then the other thing is that of course, you know, if you're a hardliner in Beijing, you hate that people are carrying around with them these little five, six inch glowing rectangles, emblematic of capitalism and a sort of like idiosyncratic worldview, you know, modernity, western mindset, et cetera. And not only are they carrying them, but they are lining up around the block to buy these things. And this is my favorite narrative in the whole book, right? Where the birth of the retail market in China sounds like it might be dull, but instead it's extraordinary because by 2010, there are only four stores official from Apple serving the entire country, right? That's one store per 350 million people. It would be like if a new iPhone came out tomorrow and there was one store in all of America, right? Where we would go get the phones, yes. And yes, what was interesting is that instead of it being sort of like tech bros or fan girls that are outside the store, it were people that didn't look like they could really afford the phone. And so Apple kind of slowly figures out that, wait a minute, we're not sort of selling the phone to people that are in the store for the Steve Jobs experience of, you know, what the wood panel tables are like and everything. It's migrants that are being paid to come in, sort of bust in from outside of Beijing and they're purchasing two phones each, which is the maximum. And then they're basically selling it on to someone who's basically able to put them up in a truck and go to some tier two city, tier three city and make extraordinary margins, right? I mean, I think this isn't in the book, but how I've recounted it since is that these migrant overlords, sort of the yellow cows, the Chinese are able to figure out how to make more money per iPhone than Apple, which is kind of extraordinary. And there's so many complicated things here and it's hard to tell the narrative 'cause I'm trying to simplify in three minutes what's effectively four chapters. But essentially you get to this stage where the yellow cows, these sort of sometimes connected with the Asian mafia, gangsters are hollowing out the components after they purchase these phones, and then they're selling those components onto the markets in Shenzhen. And then they're either selling them on, so you have unhappy customers who think they have an iPhone but it's been tampered with, or they're returning them and it gets to such a stage of greed where they're actually using fake identifications purchasing the phones in places like Portland on a 24 month contract, but they're only paying for the first month. And then that phone technically doesn't work in China, but they are taking it to China using factory connections to zap or burn out the processor, which renders the phone inoperable. But at the same time it masks where like the sort of digital footprint of where it was purchased, and these people end up having phones that are like literally like either in the suitcase or in the backpacks and they're lining up at the genius store saying, Hey, I bought iPhones for everyone in my village and none of them work. Yep. And the genius bar is thinking, God, I can confirm that this is a new phone, I don't know why this doesn't work. But if you're seeing the same problem over and over, of course your natural assumption is we've got a supply chain issue.

Right. So they don't know that they're being scammed. Anyway, my point is, once they begin this cat and mouse game where they're retaliating against them, the yellow cows have this political clout and they're basically able to complain, Hey, we're being treated unfairly by Apple. And that complaint sort of reaches up the echelons of the communist power until within 36 hours of Xi Jinping really ascending in March 2013, he goes after Apple. The issue is mindbogglingly complex, but it just tells you that Apple's really successful in China, both as an operator and as a retail company, but they don't actually understand the country, they don't understand the culture, the politics, and they have like this big like political awakening moment and then we're off to the races for sort of part five of the book.

Yes.

So essentially what happens in 2013 and in the years afterwards is Apple fears its products are going to be blacklisted in the country. And of course this is at a time when Facebook and Google have recently been blacklisted. And so it doesn't feel like an idle threat and a number of things happen. But essentially what Apple is sort of gleaning when it begins to have these China experts who are in the country is realizing that the thing Beijing's upset about is technology transfer or the lack of it, you know, a company like Samsung I think has literally three dozen joint ventures in the country at the time, and Apple has zero. So it just looks like Apple is not in China for China, they're not playing fair, they're earning enormous, you know, financial dividends. And Tim Cook, I think before this issue became a big deal was on conference calls saying things like, we have the mother of all balance sheets. Well, when Chinese companies are working for 1%, 2% margins and sort of making this whole thing even possible, it just begins to look really unfair. And so as Apple is being fearful or getting fearful about this, this team of specialists in the country that are sort of hired or named to be in China, and they jokingly call themselves the gang of eight, they sort of come up with a new strategy.

They sort of come up with a strategy to realize like, we need to get the message to Beijing that it's true we don't have any joint ventures, but they don't seem to understand we are sending America's best engineers. This is the manufacturing design team that we spoke about to basically sleep on the factory floor of dozens if not hundreds of factories to build 230 million iPhones a year. And that the competencies we sort of inculcate in these factories then pay dividends to China. So true the companies aren't making much margin from us, but once we've taught them those skills, they can give them to a Xiaomi, an Oppo, a Vivo, et cetera. So my sort of paradigmatic example is there's a company called Shenzhen Lens, or just Lens Technology, and they're the ones who take Corning glass. It's sometimes made in America, it's at least made by an American company, but Corning makes glass in the meter, right? Like meters wide and meters tall and someone has to cut it, shape it, etch it, temper it. You have to, you know, introduce multi-touch electrical circuits that are invisible within the glass in order to make multi-touch possible. And that's all happening in China. But if I've been taught by Apple, and I should say there's this co-creation right, to get this done, what am I gonna do with those skill sets sort of three months after the latest iPhone has come out when the volumes are no longer there, and Apple's basically specifically saying, we need you to go train and teach the Android market because we don't want you dependent on us, right? Apple's really concerned that if you're on the ground floor of the iPhone in 2007 and you're growing exponentially with Apple, but then they decide, hey, we're actually gonna use a different piece of glass or something like that, that if they obviate you or if they obviate the component, they're gonna obviate you and you're gonna go bankrupt after making all these investments. And that's gonna cause all sorts of political problems in China. So they're specifically saying, however fast you grow with us, please grow that fast with somebody else. So this message essentially gets to Tim Cook, he's convinced by it, realizes we're really sitting on some great capital here and we need to tell the CCP. And so he's photographed with Lisa Jackson, who is formerly the head of the Environmental Protection Agency under Obama, and Jeff Williams who just retired as Chief Operating Officer. And they go to Zhongnanhai, the citadel of communist power, and set to deliver this message with a 1200 word memorandum of understanding to basically get the Chinese on their side. And the significance to me of this narrative beyond sort of what I've just said, is that as I said earlier, Terry Gou was the first person to understand that the learning was the value of being in the Apple relationship. Once this message becomes clear at the political level, the understanding that Terry had had for the prior 15 years basically trickles down across this Chinese supply chain where a whole host of companies that always thought of Apple as overbearing and you don't wanna work with them suddenly understand, and obviously this is my language, not Apple's, no, that Apple is the great progenitor of Chinese innovation. They're the biggest supporter of Made in China 2025. So irony of ironies, if you wanna support Xi Jinping's goal of introducing indigenous innovation, the mother of all capitalist companies is the company that's willing to train you to get up to speed.

Yeah.

So first of all, I don't think Washington really had any idea the extent to which technology transfer on the part of Apple was taking place. And you know, one thing that's, I think it's two paragraphs in the book, but it could probably be its own book, is that it wasn't just a transfer of technology from American companies or rather from Cupertino to China. Apple had these SMEs, subject matter experts, people that were, you know, PhDs in material science and things like that. And they would go find capabilities that were cutting edge for, let's say building Rolexes in Germany or Austria, and then really sort of refashion those technologies to help with like a little pin or knob on the iPhone, right? And so they would discover these technologies in, as I said, Germany, Austria, Japan, places like that. And then they would teach them in China and scale them, right? So I don't think anybody knew that was happening. I was six months of research before I talked to someone who knew that or who was able to give me a narrative about that. So then the question is, well, when did Apple sort of realize this and shouldn't they have done something? And you know, it's funny, I know that I can probably come across as a major critic of Apple, but actually a lot of people have said I'm too generous to Apple here because as you know, as a reader of the book, I don't really have any villains in the book. I don't really vilify Apple. No, no, I'm pretty critical of Tim Cook when it comes to the conclusion of the book. But that in a sense, that's when my voice comes through. But otherwise it's a pretty neutral narrative. So what I would say about this, and I think this is where possibly I'm being too generous, is that 2013 when Xi Jinping goes after, or maybe I should say CCTV, but through Xi goes after Apple and they have this moment where they're realizing, oh, like we've got a real political problem here. I mean, clearly that is the point in which they could have gone on a different trajectory and realized everything we're doing in China needs to be replicated someplace else. Maybe that's India, maybe that's Mexico, it's probably not the United States for some reasons we can get into, but we need to do that. In fact, it's the time that they double down in China. And it's the same time, and this is not in the book, where Tim Cook sort of reverses Steve Jobs's policy and decides to introduce dividends to investors, right? So instead of using sort of excess capital into building resiliency for supply chain, they reward shareholders instead. So look, with the benefit of hindsight, I do think that was a major mistake and they should have done something different. But this is where I'm gonna be generous. Steve Jobs has only died 18 months ago. Nobody thinks that Tim Cook is gonna be able to fill his shoes. Apple is under tremendous pressure. People think they're going to lose the market to Android, which has gone from basically zero to 80% market share in a matter of five years or so. And it's just not clear that Apple's going to be able to sort of keep the richest quintile of users on the planet. And so to say, oh, by the way, you know what you also should have done during that time of like complete stress, you also should have replicated the entire thing that you'd built up in China over the previous decade someplace else. I just don't know that that's a realistic thing to say and I'm using 2020 hindsight to make the point. So it feels to me like too cynical of a reading in a certain sense.

So it's kind of a multifaceted answer. So there have been iPhones assembled in India since 2017, but interestingly I can find no evidence nor speak to anyone who says that that had anything to do with like China's authoritarian turn, right? It's actually just a more simple thing, which is that Narendra Modi had put tariffs on products coming from China. So as Apple begins to think, Hey, wait a minute, the next nation with a billion people and a growing middle class growing 7% a year, et cetera, is India, we need to supply this market. But Modi's making it where actually if you import the iPhones from China, they're 20% extra. And this is already a country where, you know, nine outta 10 people want the iPhone, one outta 10 people probably at best can afford the iPhone a decade ago. And so Apple realizes, okay, we need to do the final step, right? Not the depth and breadth of the supply chain, but just the assembly in India so that the phone can say quote unquote made in India. Tariff law really, I gotta say, isn't that strenuous about sort of where products are made if the final step is made in some, if right? Basically there's a language here. If there's like a constructive step in the final stage of the process, then it's made in that country. So those phones are not any less dependent on the China supply chain than anything else, but they are in fact made in India for law purposes. So they begin to do that in 2017. And then when Trump also imposes tariffs on China, then Apple gets the thinking of, wait a minute, why don't we just take what we're already building in India, scale that up in terms of the assembly and then phones coming from India to America won't be subject to China tariffs, right? So in other words, it's a tariff play rather than like a geopolitical strategic wake up call that...

that you are sort of asking about. And so, you know, when I get asked all the time about when did Apple wake up to this threat, what I find interesting is the assumption is that they have woken up. And I've had people within Apple read the book and say, you know, I always thought we had the power in the relationships 'cause we could negotiate, we could get anything we wanted. The red carpet was rolled out to us, to wherever we went. I had never really taken into account like the siren call, as I call it in the book, as to like why China was bending over backwards to get all this. You know, I mean frankly, I think going back to the paper that you just published in Foreign Affairs, I think we're just beginning to grapple with the implications of what a formidable foe China is.

I mean, you know, when did Trump wake up to the idea that China had a complete choke hold over rare earth magnets? I mean, I don't think it was in Trump 1.0. I think arguably it was about two months ago.

I think we see the evidence of that based on the negotiating strategy of the administration, which seemed to have been taken completely by surprise.

And I, you know, I'm more in the vein of thinking that like China basically just thought about what did the US do in terms of realizing that certain semiconductor designs and processes were part of choke points either in America or in allied nations like Japan and the Netherlands. What can we do? Where are our choke points and how can we flex our muscles on these things?

So I'm glad you asked about this. So yes and no. So the early months of COVID, I don't think were a wake up call. This is actually when a bunch of articles were written saying like, oh my gosh, like Apple is so exposed to China, they're gonna have real difficulties here. And in a certain sense, I think Apple actually demonstrated the capabilities and capacities of its supply chain. So 2020, I think it is, ends up being a year when Apple revenues go up by 30%, right? This is at a time when they've been growing by single digits or even having revenue falling, and all of a sudden they have their best year in like seven or eight years during COVID. I mean that, you have to remember that like every store in China was closed for a number of weeks and stuff. So you would not expect great financial success.

But the reason why, and this sort of goes back to the 50% rule, is Apple is number one, maybe number two for any of its suppliers. So if a supplier of anything in the supply chain, right, there's a thousand components within the iPhone, has their capacity cut in half, guess what doesn't impact Apple, right? Apple's still getting their share. That's the sort of clout that they have. If you can build anything at reduced capacity, Apple's the first person you're gonna get whatever you have. And so they were really able to sort of feed the market. Plus you had so many people, you and I, I'm sure together working from home, and what'd we do? We decided to spend some of the excess money that wasn't going through our social life on new MacBooks and iPhones and stuff. So there was a newfound demand for Apple.

So for let's say the first two years of COVID, it was actually a demonstration on Apple's part of the resiliency of its supply chain, and that being in China was not a mistake. All of that changes, I think this is April 2022, when Shanghai, you know, basically greater Shanghai population of some 25 million people goes into lockdown, and this is the center of Apple's operations in terms of where their headquarters is and so forth. And they couldn't get things made. They couldn't, you know, move the machinery from one factory to another. Supply basically just comes to a standstill. And even companies like Huawei are vocally saying like, we can't deal with this policy. And so what I was told was that that was when Plan B, we need to build in India, got approved. So you had someone named Priya Balasubramaniam, she's been leading, she's the VP of iPhone production, and she'd been a huge advocate of we need to be doing stuff in India for years. And I'm told that once Shanghai goes into lockdown, basically everything Priya had been saying for the prior five years was like, okay, you've got clearance to go do it.

You know, I should buy this phone just to have in presentations and

Like it's $2,600. I'm like, it genuinely might be worth the investment. Oh, I played with it, I've tested it out. I mean it's a marvel, but I just mean like people don't know it because it is not at T-Mobile or something. Right. You can't go get it at the mall. Right. So like I should have it just as a demonstration.

I remember saying to a pretty senior person at Apple, you know, Tim Cook's a pretty smart guy. Why isn't he putting more money in investment into India? And they said it's because Tim Cook's a smart guy that he is not putting more money in investment into India, right? Sort of he knows better than anybody else what China factories are capable of.

I mean you're talking probably a two decade investment on behalf of someone like India, with the assumption that they also introduce a sort of Nietzschean will to power through manufacturing that China has demonstrated for four decades. Nobody else has that, right? It's like you don't get to LeBron James' level of basketball by doing some part-time basketball lessons, right? Like you devote your entire life to it. And that's what China's been doing in manufacturing, you know, and developing all these toeholds. I mean even something in semiconductors, like no, they don't have the cutting edge that TSMC has, but my oh my, do they have the lagging edge in real dominance, right? And you can just go down the list of all the things that they do really well.

And you know, where I was really hoping that the book might have a policy impact was not actually America, but India. I mean I want India to really take on and lure and incentivize, do whatever they can to pull in Apple orders. And I have had conversations with Indian ministers at the provincial level. But I, you know, I don't wanna get into controversy here, but like, I think there's a pride element that you often encounter in India, and frankly that Apple engineers in India often encounter, which is that a, they don't wanna be told what to do. They're not as receptive, they don't have the same absorption capacity, to use the language of Kyle Chan, that the Chinese demonstrated in terms of willingness to accept the lessons and do anything that Apple wanted. The Indian engineers just don't have that at the minister level.

They don't want to sort of be seen as a haven of low value labor intensive jobs. They want to compete with the Koreans where they're doing things that are sort of sexy, and you know, ministers wanna be seen as bringing in the high value components and stuff. Totally get it. I totally understand it. But unless you have a do-it-all strategy, you're not really diversifying from China. So one Apple former VP said to me that like, even if you're 1% exposed to China, when you develop your supply chain with someone else, all you've done is pissed off China and you haven't really diversified. So it's multiple tiers down the supply chain where you'd have to really replicate the depth and breadth in India, probably even involving, you know, mineral extraction in places like Africa and so forth.

And so I just don't think that Apple has the will, they don't have the same hunger today. I mean, they're a $4 trillion company. Things are going well that, you know, sources that I would speak to in the late nineties and two thousands had. So yeah, I honestly just don't think Apple really has what it takes. I don't think they have the political will. And Trump, I mean clearly is the most sort of expressive, what do I want to say? Like antagonistic press person on this issue in terms of executives, right? I mean he literally came to power saying China's raping our country. I mean, you don't get that sort of language from other people. And yet I think he's also shown a sort of short attention span on these issues and an inability to really follow through or understand the complexities.

And so, you know, it was basically like a caricature of how you appease Donald Trump. What Tim Cook did in the Oval Office, where he literally just brought a hunk of 24 karat gold attached a little glass emblem with his signature on it and Donald Trump's name. And that basically was able enough to get, you know, Apple exempted from tariffs. So I'm writing my epilogue about this, right? And my sort of quip about this is like, well Apple iPhones aren't gonna be made in America, but its bribes will be. Ouch.

Yeah, that was Trump 1.0.

Around... Yeah, that was 2019.

Where a Flextronics or Flex factory that had been up and running for 2013, and interestingly within China, was basically seen in its embarrassment. Like it was the whole signal of like, why we can't do this in America. And it basically got rebranded as like part of the America First strategy that we were gonna build stuff in the US. So that was a sort of a dog and pony show.

Yes. I mean this is sort of what Apple figured out in 2014 to 2016 when China introduced a law that basically said, Hey, no factories can have more than 10% temp labor. And Apple does an internal study and realizes that they've got literally like hundreds of factories that rely on, you know, 50% temp labor, 80% temp labor, especially for something like iPhone production, which is not sort of like, you know, a certain number of units per day, right? It spikes in September through December and then it sort of falls away. And so all of a sudden, every iPhone launch you need hundreds of thousands of new hires that are only gonna work at the company for, you know, 12 weeks maybe, maybe three months. And then they move on to something else. And so they're deeply reliant on temp labor. I mean that's like the secret sauce of why sort of China and Apple work so efficiently together.

And so what Doug Guthrie, sort of the China expert, that's probably crossed... yes, understood, was that this is a national law, but the enforcement is local. So if Apple works with the local cadres, invests, makes R&D centers and et cetera, the local law or the federal law isn't going to be locally enacted because essentially you have a wink-wink arrangement. So I mean, technically every single year for iPhone launch, Apple is violating or breaking the law, but it's never been a problem for them because that's how the Chinese rule of law system works, or rule by law system works. And...

So I was surprised how well the iPhone 17 did in China, right? Because you do wonder about Chinese nationalism and the idea that, you know, the more that Apple pushes into India, the more that they'll be seen as the corporate poster child of Western decoupling from China. And if I'm living in Beijing thinking, well why don't I, I'm gonna buy the latest Xiaomi, the latest Huawei, 'cause I don't wanna be sort of supporting that. I do think that's probably gonna play out in the next two to five years. And but I also, you know, but to be clear, I would've said that in the summer and then the iPhone 17 did quite well. So, you know, perhaps I'm wrong about that, predicting the future stuff.

The other thing of course is that, you know, Huawei phones aren't sold in America. I mean, back when I was living in Germany in the late 2010s, I had a Huawei, right? It had this monochrome lens developed by Leica. It was a phenomenal camera, phenomenal phone. But Huawei's in a different place now where they don't have access because of Trump 1.0 to 5G chips, you know, designed by the likes of Qualcomm. And crucially, they don't have Google services. Now Google's already banned in China, so it doesn't matter for their local market, but it does mean that someone living in Germany in 2025 isn't gonna buy a Huawei phone because it doesn't have Gmail, it doesn't have YouTube, it doesn't have the Google Play Store. And so Huawei's coming up with their own operating system to rival Android and iOS.

And my expectation, maybe this is pure just speculation on my part, is that that becomes the de facto operating system for all smartphones in China at some stage. I mean, in a sense, why wouldn't you do that? Why would you continue to rely on Western operating systems when you can take full control? And so yeah, that's the thing.