Trump and Apple Manufacturing: Let's Try a Carrot Instead

By MarketsFool.com

Mac Pro is one of the few Apple products manufactured in the U.S. Image source: Apple.

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A big part of Donald Trump's election victory was predicated on the idea that Trump could reinvigorate U.S. manufacturing and the related jobs. While that's far easier said than done, Apple (NASDAQ: AAPL) is no stranger to being targeted over its long-standing use of contract manufacturers in Asia. The president-elect has broadly mentioned the possibility of implementing import tariffs as a way to discourage domestic companies from making products abroad and shipping them home to sell, even though that risks a potentially disastrous trade war.

However, instead of using punitive measures, Trump is now considering offering incentives to encourage domestic production. Can a carrot work better than a stick?

It better be a huge carrot

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Last week, Trump sat down with The New York Times for a wide-ranging interview covering many topics. Trump noted that Apple CEO Tim Cook gave him a call:

Trump has a tendency to view everything as a financial transaction that can be negotiated, so it's perfectly expected that his go-to tool would be a tax incentive. But money is not Apple's primary motivation in setting up its supply chain in this way (more on this later), nor would money likely appeal all that much to the world's richest company. Apple has long argued for comprehensive corporate tax reform, even if it meant a notable increase in the Mac maker's tax bill, and Trump is already planning on widespread tax cuts for corporations as well as potentially pursuing deemed repatriation, whichwould incentivize Apple to repatriate more rather than less (after paying a massive one-time tax bill). It's not clear what specific incentives Trump could offer Apple beyond what's already on the table.

Trump is characteristically confident that he'll be able to succeed, despite very real operational challenges associated with Apple actually bringing any meaningful number of manufacturing jobs back to the U.S. Beyond labor costs, it would be extremely difficult for Apple to build up a large work force of manufacturing employees with the right skill sets (in Tim Cook's words, "vocational kind of skills"). Additionally, most of Apple's component suppliers are located in Asia as well, so U.S. manufacturing would also result in substantially higher logistics costs. Short of the world's biggest carrot, Trump will likely fail at convincing Cook and Co. to expand Apple's domestic manufacturing operations in any significant way.

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Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.