Tags
Apple, Cato Institute, China, Colin Grabow, corporate cash, corporate debt, India, liberatarians, manufacturing, reshoring, supply chains, tariffs, Trade, Trump, {What's Left of) Our Economy
Not that libertarians are wielding much influence over U.S. trade policy these days, or are likely to in the foreseeable future. After all, how many politicians in either party, much less voters, have much interest in analysts that urge the United States to practice one-way free trade – dropping its trade barriers even though competitor economies keep theirs towering?
But it’s always useful to be reminded about the lengths to which these trade extremists will go to make their case, and a great example of such “trade derangement syndrome” has just been provided by Colin Grabow of the Cato Institute.
In a recent op-ed, Grabow asked “what would happen if, due to rising tariffs, Apple decided to end the production of iPhones in China and move production in the United States.” His answer?
“True enough, jobs would be created, but at substantial cost. Before a single iPhone could be made, billions would have to be devoted to building new factories. Further billions would have to be spent attracting workers in a low-unemployment economy with much higher wages than those found in China. Time would be needed to train these workers as well as develop the associated ecosystem of suppliers.”
In other words, lots of new jobs and factories in the United States. The horror! And – even worse? – major efforts would be needed to teach valuable new skills to many American workers.
Since free lunches are indeed difficult to find in economic theory and reality, Grabow then rightly proceeds to ask how the necessary expenses could be financed. All the answers he provides make a reasonable case that, at least in the short term, the costs would exceed the benefits. But his list of Apple’s funding options – which features raising prices, which would decrease sales and productivity for an entire economy deprived of many of the company’s miraculous devices; cutting R&D spending, which would threaten the firm’s competitiveness and ultimately its ability to generate any of its high-pay American jobs; and absorbing the costs of the tariffs, which would lower investable profits and dividends, and hurt shareholders by cutting the stock price – is missing one stratagem that should be glaringly obvious today.
That funding option? Borrow the money. And P.S. – it’s an approach that Apple (and many other businesses) have been using a lot lately because interest rates have been so low for so long. According to this recent report, the company has “become one of the largest bond issuers in the market, with dozens of bond offerings. These large bond issues and other short-term debt offerings have brought Apple’s total debt to almost $100 billion as of the end of 2017.”
And although no outsiders should pretend that they know exactly how much cash a company should hold at any given time, it’s noteworthy that Apple’s current stash isn’t exactly negligible. As of mid-year, it topped $240 billion.
Grabow is correct in pointing to the difficulties of moving big supply chains in the first place. But the challenge is hardly impossible, especially when important national governments say “Jump!” In fact, in response to India’s demands, Apple itself has promised to start helping the country set up just an iPhone manufacturing complex in return for permission to establish Apple retail stores in the country and access its (potentially) huge market in the most profitable way. The United States, of course, has a large market, too, and the skill levels and other pieces of industrial infrastructure are much greater than those current in India.
In fact, this Cato analyst’s arguments against tariffs on Apple are so transparently flimsy that they indicate that he and his Institute aren’t mainly concerned that such trade curbs won’t help strengthen the American economy. They’re mainly concerned that they will.
