Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
I am so pleased because I've been working on this
for a long time to welcome to the show. Patrick
McGee who is a very interesting journalist, San Francisco based
correspondent for the Financial Times, which is kind of like
England's Wall Street Journal, and he wrote a book called
(00:22):
Apple in China that maybe the best business book I've
ever read, really remarkable, and I've been Patrick has been
much in demand because of the book and because of
his daily job, but he found some time for us
today and I'm very grateful.
Speaker 2 (00:40):
Patrick McGhee, Welcome to Kowa Frost.
Speaker 3 (00:44):
Love that introduction. Glad you enjoyed the book.
Speaker 1 (00:46):
Yeah, And I find I interview a lot of authors,
and I find, because I hear it from authors that
most radio hosts don't read the book or don't read
much of it. I make it my job to almost
without exception, to read the whole book, and I did
read yours. And my background, just so you know, Patrick,
my background is investing and finance, and I used to
(01:07):
be a trader on the options exchange in Chicago, so
I you know, I'm very much a business guy already.
So anyway, I thoroughly enjoyed the book, so I think,
I want to start with a very macro kind of thing,
and then you can take it wherever you want to
go with it. A lot of people think that, and
not entirely wrongly, that Apple used some things that China
(01:33):
offered in terms.
Speaker 2 (01:34):
Of scale and costs and so on.
Speaker 1 (01:38):
Apple used China to make Apple hugely successful. And you
argue that, while that's certainly true, that it runs just
as much in the other direction as well, that China
used Apple, and I thought it was a fascinating thesis,
So why don't you go wherever you want to go
with that?
Speaker 3 (01:59):
Yeah, so you're right that that's absolutely true. The first
part that, of course, you know, China is the only
place in the world that offered the right combination of cost,
quantity and quality to meet Apple's demands. The thing that
people don't get and I didn't get, and I was
an Apple reporter for four years, and so I sort
of stumbled into this narrative is that there's a massive
(02:22):
story of technology transfer here because essentially what happens is
in order for Apple to build at the enormous scale
that it builds that and you've got to remember, you know,
they go from five million iPhones in two thousand and
seven to two hundred and thirty million iPhones in twenty fifteen.
That just to do that, there are hundreds of suppliers,
(02:42):
and everybody is incentivized to locate in China when you're
working with those kinds of volumes. So even if many
of the suppliers let's say making memory are Korean, our Taiwanese,
our Japanese, all of them are sort of moving over
to China during that year of sorry, those multiple years
of exponential growth for the iPhone, And there's just like
technology transfer embedded in that. Right, you have employees at
(03:04):
each of those places that have to work on the iPhone,
and then they get poached by other places, right, they
go other places, or just the suppliers themselves that are
directly feeding Apple. You know, they're only making the iPhone
for a certain number of weeks per year at peak capacity.
But of course, once they've invested in the machinery, and
indeed Apple would often purchase the machinery for them, they
(03:24):
still need to keep the lines running. So in a sense,
like what do they do well? They do the most
obvious thing if Apple's been teaching them how to sort
of shape Corning, Gorilla glass, how to etch it with
little invisible circuits so that multi touch works and so
on and so forth. Well, then you're going to go
to Apo, Vivo, Shaomi, Huawei and do the same thing
for them. So I argue essentially that there's a massive
(03:45):
technology transfer story that hasn't really been told, and that
Apple really built up its supply chain for its own need,
but then chrying to use it for its own purposes. Right,
so the exploitation goes both ways.
Speaker 1 (03:58):
I'm going to go in in probably no particular order here,
but who is Uncle Terry.
Speaker 3 (04:04):
Uncle Terry is the name that Apple gave to Terry Guo,
the founder of Fox KHN. Interestingly, Foxhn is Taiwanese, not Chinese,
And that's really interesting just because the formation of modern
Taiwan is really the losers of the nineteen forties Civil
War on mainland China fleeing to this little adjacent province
and setting up their own government, laying claim for several
(04:25):
decades to the entire mainland. And it's great from a
narrative because you didn't want a book that was just
about engineering, and then two thirds of the way through,
all of a sudden we're in a geopolitical story. And
so really we're in a geopolitical story from the get go,
because when Steve Jobs comes back to Apple in nineteen
ninety seven, they struggle to build that candy colored iMac
that lots of listeners will remember because it's sort of
(04:47):
just like with the first computer, really really to be
designed not to sort of sit in a corner basement, right,
but maybe be adjacent to the kitchen. I mean, it
was beautiful, and it was actually made in Korea by LG,
a company most people are probably familiar with, and at
first it's a massive success. But then when Apple wants
to expand production, LG essentially fails in building it in
(05:08):
Wales and in Mexico. And Terry Glow had some relationship
with Apple at the time, but he sort of bets
his company on pleasing Apple. He calls up some guy
by the name of Tim Cook, who is today the CEO,
and they formed this relationship together. And so I'll tell
you one of the best lines of the book, and
I can say that because my wife wrote it, is
that Johnny I've and Steve Jobs made Apple products unique,
(05:31):
but it was Kerry Glow and Tim Cook that would
ensure they were ubiquitous.
Speaker 2 (05:36):
Who owns who? Now?
Speaker 3 (05:39):
I don't know that Apple has a lot of leverage.
Speaker 2 (05:41):
I mean my narrative is very much.
Speaker 3 (05:43):
One of the student has become the master. Anyone familiar
with the phones being made out of China today will
know that they've moved well beyond cheap imitations. In fact,
I think the best phone in the world right now
is called the Huawei Mate XTS. And if people want
to google it, what they'll find is that in Apple
it is an iPhone and an iPad in one. In
(06:03):
other words, it unfolds twice to become an ultrasin iPad
like tablet, and when it's unfolded, it's actually thinner than
the iPad pro, which Apple has built as its thinnis
product ever, and it costs twenty six hundred dollars. Sometimes
critics have derided it for costing so much, and they're
sort of missing the point. This is the Porsche of smartphones,
(06:23):
and it's made by a Chinese company, not an American one.
Speaker 2 (06:26):
Is it possible for an American to buy that in
the US.
Speaker 3 (06:31):
Yeah, there's no store that would sell it here. I mean,
I've played with it because people have bought it overseas
and then shown it to me here. Frankly, I do
so many speaking gigs that I should probably shell out
the twenty six hundred dollars just so that I have
it on hand so people can use it. I mean,
in a sense, the key thing is just not that
it's a miracle in the sense of manufacturing it is,
but also of industrial design and product design. In other words,
(06:52):
the whole sort of scope of the special sauce of
what Apple has contributed to design and manufacturing over the
last twenty five years is now really full owned by
the other side. So I kind of call Apple and
China the marriage of skill and scale, and China, of
course has both the skill and the scale. We don't
have the scale. I don't know that we ever did,
and arguably we're losing the skill as well.
Speaker 1 (07:15):
Right, Yeah, for sure. We're talking with Patrick McGee. His
remarkable book is called Apple in China. Without veering too
far away from Apple and the direct thesis of your book,
but it seems.
Speaker 2 (07:29):
That you argue that China learned an.
Speaker 1 (07:33):
Immense amount from Apple that they needed to become an
electronic powerhouse in their own right and get out of
making quote unquote cheap Chinese junk, and there still is
plenty of cheap Chinese junk, but a lot of people
don't know just how high the quality is of a
lot of Chinese stuff these days. And I wonder, and
again slightly but only slightly off topic from your book,
(07:54):
do you think the same thing is going on with
electric cars and Tesla and today? Whatever they needed from
I still might not be the right word because these
companies sort of did it voluntarily. So are we creating
the competition that's going to kill us?
Speaker 3 (08:12):
In short? Yes, I mean I'm pretty optimistic as a person.
I'm kind of a happy go lucky goals and golden retriever.
Yet I've written quite a pessimistic book, and that's just
based on conversations and the evidence I'm confronted with. Honestly,
I'm constantly hoping that someone shakes me out of my
pessimism by you know, let's say, showing me a factory
in America based on artificial general intelligence or something right,
(08:35):
or like just just the idea that we're going to
get there, but we were years away from that. So yeah,
I mean, there's actually a section on Tesla in my
book and essentially the story of Tesla in China is
that Elon Musk is considering around twenty eighteen building a
giga factory in Shanghai, wants to do it in twenty
four months, and the mayor of Shanghai says, let's do
(08:55):
it in twelve months. And Musk's sort of taken aback
and he says, look, we'll give you the free land,
we'll give you the subsidized machinery. Let's make this happen.
And basically what was going on was that Tim Cook
had been in China just the previous year or so
and had explained the massive technology transfer that was taking
place at the behest of Apple and giving rise to
China's like global competitors in the smartphone scene. And by
(09:18):
the way, some listeners, probably most listeners maybe aren't familiar
with most Chinese smartphones because for a variety of reasons,
they're not really sold here, but they have more than
fifty percent global market share. And so it had worked
out really, really well for China, or for China's industrial prowess,
to have so much of Apple's operations in the country.
And so Tesla is basically told, look, we want you
(09:40):
to do for electric vehicles what Apple has done for
the smartphone. And so Tesla actually hires a bunch of
Apple people with experience in China to set the plan
into motion, and within just a few years of Tesla
localizing its supply chain, meaning that they would bring in
some of the best people and train up all the
suppliers that are going to work with lesson that's for
(10:00):
making their cars there. Of course, you know, even before
Trump's two point out, Joe Biden puts one hundred percent
terrifs on the EV's coming out of China. So I
think Tesla's influence has been enormous. But really what they've
done is taken the playbook of Apple and applied it
to a new sector.
Speaker 1 (10:15):
All Right, let's go with a wild hypothetical and imagine
that somehow the United States of America elects a president
who is not a big fan of international trade and
thinks that China is treating us unfairly. I don't know
that something like that would ever happen, but let's.
Speaker 2 (10:30):
Just imagine it.
Speaker 1 (10:32):
And let's imagine that such a president tries to put
an immense amount of pressure on American companies to not
manufacture in China and to manufacture in the US, but
at least to not manufacture where, you know, in a
country that he considers to be something between a competitor
and an enemy. So at that point, Patrick, I'm going
to put you in the position of being a strategic
(10:54):
advisor to Tim Cook. What do you say to Tim
Cook if you believe that there is something close to
an existential threat to Apple if they keep making so
much product in China.
Speaker 3 (11:08):
Well, it would be something like this. So Tim, you
know better than me that our operations are almost exclusively
in China. We might rely on a global supply chain,
but essentially all roads lead through China, and it would
be way too complex, expensive, and frankly fanciful to move
those operations anywhere else. So thankfully we have the last
(11:30):
ten years of dealing with shijin Ping. We understand how
to respond to a dictocatic regime, and we're now going
to apply our China playbook to Washington. Wow.
Speaker 2 (11:43):
Wow, that's a remarkable answer. So the answer the answer is,
of course, the answer is that what what Trump.
Speaker 1 (11:55):
In this case would want Apple to do is not
something that Apple could do even that wanted to.
Speaker 3 (12:01):
It really couldn't and so what's Apple actually doing. They're
making pledges of enormous investments in America and India. Financial
analysts that I'm familiar with knows how any of the
math is done. So just must have been about two
months ago that Apple pledge to spend one hundred billion
dollars on American manufacturing. And this is actually on top
(12:22):
of a five hundred billion dollar pledge in February. So
most of these things happened since my book was written.
But it's basically a nonsense. I mean, what they're counting
as investments are really just part of overall spend. And
I believe, and this is a speculation on my part,
I need to sort of disclose that, but I don't
(12:44):
know where else how else the mass adds up. I
believe they're counting their scareholder buyback and dividend program alone
is more than one hundred billion dollars a year. So
you multiply that by four, you're already accounting for more
than four hundred billion dollars of the six hundred billion.
And of course, the main thing or is that that
is not reshoring, that is not us manufacturing. That's just
(13:05):
the financial game that Apple has been playing since twenty thirteen.
Speaker 2 (13:08):
So what I what I imagine is.
Speaker 1 (13:11):
I imagine Tim Cook and his finance people opening up
a chat GPT app and saying, hey, chat GPT, please
generate a random number for me between one hundred billion
and a trillion, and then we'll tell Trump that's how
much we're gonna spend. That's what That's what I think
they're doing. And I think after they put out the
(13:31):
press release and then Trump buys it and says, look
at these huge numbers. Because Trump is most impressed with
huge numbers, I think they sit around in their executive
conference room with a few shotglasses and toast each other
and chuckle at how they got away with it.
Speaker 3 (13:48):
Again, Yeah, honestly, I mean pretty much. And the other thing,
of course, is that if you take that number to
be remotely serious, just consider that no products that you've
ever purchased from Apple over the twenty years say made
in America on the back. All of them say China.
So if you think they're investing tens or hundreds of
billions of dollars a year in America, how much do
(14:08):
you think they're investing in China?
Speaker 1 (14:11):
What about all this chatter about moving supply chains to India.
Speaker 3 (14:16):
So I'm personally very much in favor of this, and
it's very true that loads of people will be able
to purchase the phone next year and it will stay
on the box made in India. But there's a bit
of sleight of hand here. Terraflaw isn't really all that demanding.
If you have a phone and takes a thousand steps
to make it, but the sub assembled phone essentially goes
(14:37):
to India and the final step is just assembling it
together and then putting it in a box. That is
enough in terms of teraflaw. That's a substantive change to
the product to say made in India. But that phone
will not be any less dependent on the China centric
supply chain than any iPhone you've ever had. So that's
kind of step one of what Apple's doing. I do
believe there's steps two, three, and four in which case,
(14:59):
over many years, they're hoping to replicate the depth and
breadth of the entire supply chain that that exists in
China and put it outside.
Speaker 2 (15:07):
And I'm wildly in favor of that.
Speaker 1 (15:09):
Yeah, and it's not impossible, it's difficult, but that's an
enormous population, they speak English mostly, they have lots of
really really big tech brains over there. Cost of labor
is pretty low. I mean they're more likely to being
able to get this done in India than here.
Speaker 3 (15:28):
Oh absolutely. Look, I mean that's why I'm more bullish
on India than I am on America. Let's say, you know,
iPhone factories in Pittsburgh, This isn't going to happen. That
being said, I think there's three reasons why we have
to be you know, circumspect. Let's say so for starters,
the more successful Apple is in expanding to India, the
more Beijing can tighten the screws in the sense that
(15:49):
factories in the Apple supply chain might just lose electricity.
The random ones say that Apple puts out a press
release hawking its latest advantages in India. That's sort of
how Chinese pauli works. It's not that there's an explicit order.
It's that something happened and you're you, as an engineer
in that area, have to go, huh, I wonder if
this is because of that right and it sort of
(16:09):
puts you in a position of pause. The second reason
is that the Chinese rightfully consider the iPhone to be
an indigenous product. I mean, of course, the iPhone's been
built in China since two thousand and seven, and they're
proud of it as an indigenous product. You can be
a nationalist and still own an iPhone. The more that
Apple is becoming the poster child for diversifying or de
risking from China, the worse it is for their seventy
(16:32):
billion dollar business in the country. The final reason is
that as much as Apple and readers or listeners might
not know this, but the thesis of the book to
some extent, is really basing it on the fact that,
you know, Apple didn't just build a supply chain or
didn't find a supply chain capable of supplying its components
for the iPhone. It went over there and built it.
And so the number of people Apple trained over the
(16:54):
last seventeen years is thirty million people three zero million,
large than the labor force of California, Larger than the
labor force of Canada. I mean, just an enormous level
of training. And I don't even really think this is outsourcing.
And my point is that Apple has this sort of
hubristic belief that they can copy and paste this model
and do it in India, and to a certain extent
(17:16):
that's possible. The trouble is India isn't quite knocking it
out of the park. Building the eight lane highways, building
the high speed rail building the world beating ports, I mean,
competing against China and all of those things is just really,
really tough. So you said, is it impossible. It's not
impossible in the sense of I'm not pointing to physics
or anything, but I don't know that India can get
(17:36):
it back together. It's got a pretty fragmented government and
a lot of work ahead of it, right, I agree.
Speaker 2 (17:41):
And as communist as the Chinese.
Speaker 1 (17:43):
Government is, when they want to do something through industrial policy,
something fundamentally capitalist, Xijin Ping or his couple of top
henchmen say the word and the lower level government officials
make it happen, whereas India doesn't work that way. In
India is all all about how can we slow people down,
how can we get bribes out of the process.
Speaker 2 (18:04):
It's just that India has an immense.
Speaker 1 (18:06):
Amount of political reform to do before they could before
they could get there. Patrick McGee's new book is called
Apple in China, The Capture of the world's greatest company.
Speaker 2 (18:17):
It's the best business book I've ever read.
Speaker 1 (18:19):
I could talk to you all day, but that's all
we got time for Patrick, and I know you're busy anyway,
but thank you so much for making time for me.
And thanks for this incredible and incredibly well researched book.
Speaker 3 (18:30):
Thank you so much. Ross really appreciate it.
I am so pleased because I've been working on this
for a long time to welcome to the show. Patrick
McGee who is a very interesting journalist, San Francisco based
correspondent for the Financial Times, which is kind of like
England's Wall Street Journal, and he wrote a book called
(00:22):
Apple in China that maybe the best business book I've
ever read, really remarkable, and I've been Patrick has been
much in demand because of the book and because of
his daily job, but he found some time for us
today and I'm very grateful.
Speaker 2 (00:40):
Patrick McGhee, Welcome to Kowa Frost.
Speaker 3 (00:44):
Love that introduction. Glad you enjoyed the book.
Speaker 1 (00:46):
Yeah, And I find I interview a lot of authors,
and I find, because I hear it from authors that
most radio hosts don't read the book or don't read
much of it. I make it my job to almost
without exception, to read the whole book, and I did
read yours. And my background, just so you know, Patrick,
my background is investing and finance, and I used to
(01:07):
be a trader on the options exchange in Chicago, so
I you know, I'm very much a business guy already.
So anyway, I thoroughly enjoyed the book, so I think,
I want to start with a very macro kind of thing,
and then you can take it wherever you want to
go with it. A lot of people think that, and
not entirely wrongly, that Apple used some things that China
(01:33):
offered in terms.
Speaker 2 (01:34):
Of scale and costs and so on.
Speaker 1 (01:38):
Apple used China to make Apple hugely successful. And you
argue that, while that's certainly true, that it runs just
as much in the other direction as well, that China
used Apple, and I thought it was a fascinating thesis,
So why don't you go wherever you want to go
with that?
Speaker 3 (01:59):
Yeah, so you're right that that's absolutely true. The first
part that, of course, you know, China is the only
place in the world that offered the right combination of cost,
quantity and quality to meet Apple's demands. The thing that
people don't get and I didn't get, and I was
an Apple reporter for four years, and so I sort
of stumbled into this narrative is that there's a massive
(02:22):
story of technology transfer here because essentially what happens is
in order for Apple to build at the enormous scale
that it builds that and you've got to remember, you know,
they go from five million iPhones in two thousand and
seven to two hundred and thirty million iPhones in twenty fifteen.
That just to do that, there are hundreds of suppliers,
(02:42):
and everybody is incentivized to locate in China when you're
working with those kinds of volumes. So even if many
of the suppliers let's say making memory are Korean, our Taiwanese,
our Japanese, all of them are sort of moving over
to China during that year of sorry, those multiple years
of exponential growth for the iPhone, And there's just like
technology transfer embedded in that. Right, you have employees at
(03:04):
each of those places that have to work on the iPhone,
and then they get poached by other places, right, they
go other places, or just the suppliers themselves that are
directly feeding Apple. You know, they're only making the iPhone
for a certain number of weeks per year at peak capacity.
But of course, once they've invested in the machinery, and
indeed Apple would often purchase the machinery for them, they
(03:24):
still need to keep the lines running. So in a sense,
like what do they do well? They do the most
obvious thing if Apple's been teaching them how to sort
of shape Corning, Gorilla glass, how to etch it with
little invisible circuits so that multi touch works and so
on and so forth. Well, then you're going to go
to Apo, Vivo, Shaomi, Huawei and do the same thing
for them. So I argue essentially that there's a massive
(03:45):
technology transfer story that hasn't really been told, and that
Apple really built up its supply chain for its own need,
but then chrying to use it for its own purposes. Right,
so the exploitation goes both ways.
Speaker 1 (03:58):
I'm going to go in in probably no particular order here,
but who is Uncle Terry.
Speaker 3 (04:04):
Uncle Terry is the name that Apple gave to Terry Guo,
the founder of Fox KHN. Interestingly, Foxhn is Taiwanese, not Chinese,
And that's really interesting just because the formation of modern
Taiwan is really the losers of the nineteen forties Civil
War on mainland China fleeing to this little adjacent province
and setting up their own government, laying claim for several
(04:25):
decades to the entire mainland. And it's great from a
narrative because you didn't want a book that was just
about engineering, and then two thirds of the way through,
all of a sudden we're in a geopolitical story. And
so really we're in a geopolitical story from the get go,
because when Steve Jobs comes back to Apple in nineteen
ninety seven, they struggle to build that candy colored iMac
that lots of listeners will remember because it's sort of
(04:47):
just like with the first computer, really really to be
designed not to sort of sit in a corner basement, right,
but maybe be adjacent to the kitchen. I mean, it
was beautiful, and it was actually made in Korea by LG,
a company most people are probably familiar with, and at
first it's a massive success. But then when Apple wants
to expand production, LG essentially fails in building it in
(05:08):
Wales and in Mexico. And Terry Glow had some relationship
with Apple at the time, but he sort of bets
his company on pleasing Apple. He calls up some guy
by the name of Tim Cook, who is today the CEO,
and they formed this relationship together. And so I'll tell
you one of the best lines of the book, and
I can say that because my wife wrote it, is
that Johnny I've and Steve Jobs made Apple products unique,
(05:31):
but it was Kerry Glow and Tim Cook that would
ensure they were ubiquitous.
Speaker 2 (05:36):
Who owns who? Now?
Speaker 3 (05:39):
I don't know that Apple has a lot of leverage.
Speaker 2 (05:41):
I mean my narrative is very much.
Speaker 3 (05:43):
One of the student has become the master. Anyone familiar
with the phones being made out of China today will
know that they've moved well beyond cheap imitations. In fact,
I think the best phone in the world right now
is called the Huawei Mate XTS. And if people want
to google it, what they'll find is that in Apple
it is an iPhone and an iPad in one. In
(06:03):
other words, it unfolds twice to become an ultrasin iPad
like tablet, and when it's unfolded, it's actually thinner than
the iPad pro, which Apple has built as its thinnis
product ever, and it costs twenty six hundred dollars. Sometimes
critics have derided it for costing so much, and they're
sort of missing the point. This is the Porsche of smartphones,
(06:23):
and it's made by a Chinese company, not an American one.
Speaker 2 (06:26):
Is it possible for an American to buy that in
the US.
Speaker 3 (06:31):
Yeah, there's no store that would sell it here. I mean,
I've played with it because people have bought it overseas
and then shown it to me here. Frankly, I do
so many speaking gigs that I should probably shell out
the twenty six hundred dollars just so that I have
it on hand so people can use it. I mean,
in a sense, the key thing is just not that
it's a miracle in the sense of manufacturing it is,
but also of industrial design and product design. In other words,
(06:52):
the whole sort of scope of the special sauce of
what Apple has contributed to design and manufacturing over the
last twenty five years is now really full owned by
the other side. So I kind of call Apple and
China the marriage of skill and scale, and China, of
course has both the skill and the scale. We don't
have the scale. I don't know that we ever did,
and arguably we're losing the skill as well.
Speaker 1 (07:15):
Right, Yeah, for sure. We're talking with Patrick McGee. His
remarkable book is called Apple in China. Without veering too
far away from Apple and the direct thesis of your book,
but it seems.
Speaker 2 (07:29):
That you argue that China learned an.
Speaker 1 (07:33):
Immense amount from Apple that they needed to become an
electronic powerhouse in their own right and get out of
making quote unquote cheap Chinese junk, and there still is
plenty of cheap Chinese junk, but a lot of people
don't know just how high the quality is of a
lot of Chinese stuff these days. And I wonder, and
again slightly but only slightly off topic from your book,
(07:54):
do you think the same thing is going on with
electric cars and Tesla and today? Whatever they needed from
I still might not be the right word because these
companies sort of did it voluntarily. So are we creating
the competition that's going to kill us?
Speaker 3 (08:12):
In short? Yes, I mean I'm pretty optimistic as a person.
I'm kind of a happy go lucky goals and golden retriever.
Yet I've written quite a pessimistic book, and that's just
based on conversations and the evidence I'm confronted with. Honestly,
I'm constantly hoping that someone shakes me out of my
pessimism by you know, let's say, showing me a factory
in America based on artificial general intelligence or something right,
(08:35):
or like just just the idea that we're going to
get there, but we were years away from that. So yeah,
I mean, there's actually a section on Tesla in my
book and essentially the story of Tesla in China is
that Elon Musk is considering around twenty eighteen building a
giga factory in Shanghai, wants to do it in twenty
four months, and the mayor of Shanghai says, let's do
(08:55):
it in twelve months. And Musk's sort of taken aback
and he says, look, we'll give you the free land,
we'll give you the subsidized machinery. Let's make this happen.
And basically what was going on was that Tim Cook
had been in China just the previous year or so
and had explained the massive technology transfer that was taking
place at the behest of Apple and giving rise to
China's like global competitors in the smartphone scene. And by
(09:18):
the way, some listeners, probably most listeners maybe aren't familiar
with most Chinese smartphones because for a variety of reasons,
they're not really sold here, but they have more than
fifty percent global market share. And so it had worked
out really, really well for China, or for China's industrial prowess,
to have so much of Apple's operations in the country.
And so Tesla is basically told, look, we want you
(09:40):
to do for electric vehicles what Apple has done for
the smartphone. And so Tesla actually hires a bunch of
Apple people with experience in China to set the plan
into motion, and within just a few years of Tesla
localizing its supply chain, meaning that they would bring in
some of the best people and train up all the
suppliers that are going to work with lesson that's for
(10:00):
making their cars there. Of course, you know, even before
Trump's two point out, Joe Biden puts one hundred percent
terrifs on the EV's coming out of China. So I
think Tesla's influence has been enormous. But really what they've
done is taken the playbook of Apple and applied it
to a new sector.
Speaker 1 (10:15):
All Right, let's go with a wild hypothetical and imagine
that somehow the United States of America elects a president
who is not a big fan of international trade and
thinks that China is treating us unfairly. I don't know
that something like that would ever happen, but let's.
Speaker 2 (10:30):
Just imagine it.
Speaker 1 (10:32):
And let's imagine that such a president tries to put
an immense amount of pressure on American companies to not
manufacture in China and to manufacture in the US, but
at least to not manufacture where, you know, in a
country that he considers to be something between a competitor
and an enemy. So at that point, Patrick, I'm going
to put you in the position of being a strategic
(10:54):
advisor to Tim Cook. What do you say to Tim
Cook if you believe that there is something close to
an existential threat to Apple if they keep making so
much product in China.
Speaker 3 (11:08):
Well, it would be something like this. So Tim, you
know better than me that our operations are almost exclusively
in China. We might rely on a global supply chain,
but essentially all roads lead through China, and it would
be way too complex, expensive, and frankly fanciful to move
those operations anywhere else. So thankfully we have the last
(11:30):
ten years of dealing with shijin Ping. We understand how
to respond to a dictocatic regime, and we're now going
to apply our China playbook to Washington. Wow.
Speaker 2 (11:43):
Wow, that's a remarkable answer. So the answer the answer is,
of course, the answer is that what what Trump.
Speaker 1 (11:55):
In this case would want Apple to do is not
something that Apple could do even that wanted to.
Speaker 3 (12:01):
It really couldn't and so what's Apple actually doing. They're
making pledges of enormous investments in America and India. Financial
analysts that I'm familiar with knows how any of the
math is done. So just must have been about two
months ago that Apple pledge to spend one hundred billion
dollars on American manufacturing. And this is actually on top
(12:22):
of a five hundred billion dollar pledge in February. So
most of these things happened since my book was written.
But it's basically a nonsense. I mean, what they're counting
as investments are really just part of overall spend. And
I believe, and this is a speculation on my part,
I need to sort of disclose that, but I don't
(12:44):
know where else how else the mass adds up. I
believe they're counting their scareholder buyback and dividend program alone
is more than one hundred billion dollars a year. So
you multiply that by four, you're already accounting for more
than four hundred billion dollars of the six hundred billion.
And of course, the main thing or is that that
is not reshoring, that is not us manufacturing. That's just
(13:05):
the financial game that Apple has been playing since twenty thirteen.
Speaker 2 (13:08):
So what I what I imagine is.
Speaker 1 (13:11):
I imagine Tim Cook and his finance people opening up
a chat GPT app and saying, hey, chat GPT, please
generate a random number for me between one hundred billion
and a trillion, and then we'll tell Trump that's how
much we're gonna spend. That's what That's what I think
they're doing. And I think after they put out the
(13:31):
press release and then Trump buys it and says, look
at these huge numbers. Because Trump is most impressed with
huge numbers, I think they sit around in their executive
conference room with a few shotglasses and toast each other
and chuckle at how they got away with it.
Speaker 3 (13:48):
Again, Yeah, honestly, I mean pretty much. And the other thing,
of course, is that if you take that number to
be remotely serious, just consider that no products that you've
ever purchased from Apple over the twenty years say made
in America on the back. All of them say China.
So if you think they're investing tens or hundreds of
billions of dollars a year in America, how much do
(14:08):
you think they're investing in China?
Speaker 1 (14:11):
What about all this chatter about moving supply chains to India.
Speaker 3 (14:16):
So I'm personally very much in favor of this, and
it's very true that loads of people will be able
to purchase the phone next year and it will stay
on the box made in India. But there's a bit
of sleight of hand here. Terraflaw isn't really all that demanding.
If you have a phone and takes a thousand steps
to make it, but the sub assembled phone essentially goes
(14:37):
to India and the final step is just assembling it
together and then putting it in a box. That is
enough in terms of teraflaw. That's a substantive change to
the product to say made in India. But that phone
will not be any less dependent on the China centric
supply chain than any iPhone you've ever had. So that's
kind of step one of what Apple's doing. I do
believe there's steps two, three, and four in which case,
(14:59):
over many years, they're hoping to replicate the depth and
breadth of the entire supply chain that that exists in
China and put it outside.
Speaker 2 (15:07):
And I'm wildly in favor of that.
Speaker 1 (15:09):
Yeah, and it's not impossible, it's difficult, but that's an
enormous population, they speak English mostly, they have lots of
really really big tech brains over there. Cost of labor
is pretty low. I mean they're more likely to being
able to get this done in India than here.
Speaker 3 (15:28):
Oh absolutely. Look, I mean that's why I'm more bullish
on India than I am on America. Let's say, you know,
iPhone factories in Pittsburgh, This isn't going to happen. That
being said, I think there's three reasons why we have
to be you know, circumspect. Let's say so for starters,
the more successful Apple is in expanding to India, the
more Beijing can tighten the screws in the sense that
(15:49):
factories in the Apple supply chain might just lose electricity.
The random ones say that Apple puts out a press
release hawking its latest advantages in India. That's sort of
how Chinese pauli works. It's not that there's an explicit order.
It's that something happened and you're you, as an engineer
in that area, have to go, huh, I wonder if
this is because of that right and it sort of
(16:09):
puts you in a position of pause. The second reason
is that the Chinese rightfully consider the iPhone to be
an indigenous product. I mean, of course, the iPhone's been
built in China since two thousand and seven, and they're
proud of it as an indigenous product. You can be
a nationalist and still own an iPhone. The more that
Apple is becoming the poster child for diversifying or de
risking from China, the worse it is for their seventy
(16:32):
billion dollar business in the country. The final reason is
that as much as Apple and readers or listeners might
not know this, but the thesis of the book to
some extent, is really basing it on the fact that,
you know, Apple didn't just build a supply chain or
didn't find a supply chain capable of supplying its components
for the iPhone. It went over there and built it.
And so the number of people Apple trained over the
(16:54):
last seventeen years is thirty million people three zero million,
large than the labor force of California, Larger than the
labor force of Canada. I mean, just an enormous level
of training. And I don't even really think this is outsourcing.
And my point is that Apple has this sort of
hubristic belief that they can copy and paste this model
and do it in India, and to a certain extent
(17:16):
that's possible. The trouble is India isn't quite knocking it
out of the park. Building the eight lane highways, building
the high speed rail building the world beating ports, I mean,
competing against China and all of those things is just really,
really tough. So you said, is it impossible. It's not
impossible in the sense of I'm not pointing to physics
or anything, but I don't know that India can get
(17:36):
it back together. It's got a pretty fragmented government and
a lot of work ahead of it, right, I agree.
Speaker 2 (17:41):
And as communist as the Chinese.
Speaker 1 (17:43):
Government is, when they want to do something through industrial policy,
something fundamentally capitalist, Xijin Ping or his couple of top
henchmen say the word and the lower level government officials
make it happen, whereas India doesn't work that way. In
India is all all about how can we slow people down,
how can we get bribes out of the process.
Speaker 2 (18:04):
It's just that India has an immense.
Speaker 1 (18:06):
Amount of political reform to do before they could before
they could get there. Patrick McGee's new book is called
Apple in China, The Capture of the world's greatest company.
Speaker 2 (18:17):
It's the best business book I've ever read.
Speaker 1 (18:19):
I could talk to you all day, but that's all
we got time for Patrick, and I know you're busy anyway,
but thank you so much for making time for me.
And thanks for this incredible and incredibly well researched book.
Speaker 3 (18:30):
Thank you so much. Ross really appreciate it.
The Ross Kaminsky Show News
Popular Podcasts
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com
CrimeLess: Hillbilly Heist
It’s 1996 in rural North Carolina, and an oddball crew makes history when they pull off America’s third largest cash heist. But it’s all downhill from there. Join host Johnny Knoxville as he unspools a wild and woolly tale about a group of regular ‘ol folks who risked it all for a chance at a better life. CrimeLess: Hillbilly Heist answers the question: what would you do with 17.3 million dollars? The answer includes diamond rings, mansions, velvet Elvis paintings, plus a run for the border, murder-for-hire-plots, and FBI busts.