I’m old enough to remember the heady days when China was “opened” to the West—back in the 1970s. Back then, American corporations believed that if they could just find a way to sell one widget to each of China’s one billion consumers—chop, chop!—riches would be theirs!
Shortly after that, China became a manufacturing base for American companies, thanks to the policies of Chinese leader Deng Xiaoping, and his special economic zones (经济特区). Under Deng, China became “the workshop of the world”.
Deng broke with Marxist-Leninist orthodoxy. He was fond of aphorisms like “To grow rich is glorious,” and “It doesn’t matter if a cat is black or white. What matters is: does the cat catch mice?”
Many people—me included, to the extent that I was paying attention—believed that China was going to become a much larger version of Japan or South Korea. Once the economic shackles of Marxism were set aside, we reasoned, liberal, Western-style democracy would naturally follow.
Then on June 3-4 1989, the Chinese Communist Party crushed a peaceful student protest in Tiananmen Square with tanks and AK-47s. The Beijing government massacred between 2,000 and 3,000 of its own citizens, many of them university students. I was a university student myself in 1989, so this one struck home. Had the circumstances of my birth been different, that might have been me.
Tiananmen Square should have been our first clue that the China of our wishful thinking was not the China of reality. We could easily have tempered our overly optimistic expectations and moderated our policies then.
But by then, the American business community was all-in on China. Yes, the Chinese government still maintained gulags and whatnot, but so what? Labor costs were cheap over there!
Then China became more militarily powerful, and the leadership changed. Deng Xiaoping, however much he repressed his own people, wanted peaceful relations with the West. But China’s new leadership, of which Xi Jinping is the latest incarnation, sought to apply the same heavy-handedness to foreign policy.
In April 2001, Chinese fighter planes forced a US Navy plane flying in international airspace to land on Hainan Island. The American crew was captured and detained for ten days. That incident got smoothed over, and was soon forgotten in the all-consuming shock and outrage over 9/11, which occurred about five months later. But still, another warning sign.
Then China unilaterally annexed portions of international waters in the South Pacific. This has brought China into near conflict with not only the USA, but also Japan, South Korea, the Philippines, Australia, and Vietnam.
As if that wasn’t enough, in the 35 years since the Tiananmen Square massacre, we’ve had numerous reports of Chinese spying, cyber attacks, and intellectual property theft.
Oh, and then there was COVID-19 in 2020. I’m not going to attempt to untangle that whole ball of bat intestines, but this was yet one more really bad thing that came out of China. At the very least, the Chinese Communist Party’s mishandling of the situation made the pandemic worse. (And that is the most charitable interpretation of the CCP’s role, among all the interpretations out there.)
The COVID-19 pandemic is now five years behind us. Many US, European, and Japanese companies have been “decoupling” from China over the past half-decade.
But not Apple. Over half of all Macs (MacBooks, iMacs, etc.) are still manufactured in China. Some 80% of iPads are made there. And 90 percent—almost all—iPhones are still Chinese-made.
Which brings us to the recent tariff brouhaha. As a former economics major, I’m no fan of tariffs. As a former employee of several Japanese companies, I have nothing against foreign corporations, foreign products, or foreign trade. (I drive a Toyota.) As a lifelong lover of foreign languages and cultures, I’m certainly no xenophobe.
But only a fool of a CEO would approach China nowadays as American executives did 40 years ago. There are scores of reasons why any American company should have long ago begun its decoupling from the People’s Republic.
Yes, that is difficult. But to paraphrase Lance Ito, that’s why Apple CEO Tim Cook and other CEOs make the big bucks. Tim Cook’s annual compensation is now $74 million.
Any B-school student with a few economics classes under his or her belt could come up with the idea of reducing costs by basing manufacturing in a low-cost country like China. The process of decoupling from China is much more difficult, and requires a lot more creativity and innovation—the sort of task for which a CEO might be paid $74 million per year.
I might also mention that I’m an Apple devotee. I either own, or have owned, all the major Apple product lines. I’ve owned at least three iPods and two iPads. I’m now on my fourth iPhone. I’ve had multiple MacBooks and iMacs.
We have been told that an iPhone made anywhere but China (or a similar low-cost country) will cost $3,500. I call bullshit. Innovate, automate, figure out a way to do it more cheaply. For better or worse, that is now Tim Cook’s job. We’ll see if he can finally earn that $74 million. He should have foreseen this day long ago.
-ET