Tim Cook: Apple products aren’t made in China because it’s cheaper | Hacker News Reader

Tim Cook: Apple products aren’t made in China because it’s cheaper

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21 pointspavornyoh68 comments

"We are outsourcing because people outsourced in the past to the point that we can no longer do things properly here."

The only way to fix a trend gone wrong is to reverse the trend, not to compound it.

Exactly what I was thinking, and wouldn't it be a PR master stroke to start the repatriation of the US's manufacturing sector?

They do manufacture Mac Pro in US.

They assemble it in the US. But the mb is made by Foxconn iirc.

And Apple is perhaps the only US company which can afford to reverse the trend. They can afford to "sacrifice" a few billion dollars for this.

But they won't do it. Their investors want to get richer not help USA. Underage child labor FTW, right Apple ?

Cut the crap. Apple makes Mac Pro in US. They also are also taking social responsibility seriously.

What social responsibility?

By hiring homophobic and women hater Dr. Dre? - money talks. Of course, at the same time preaching gay marriage, because it benefits them. They don't give a shit about responsibility, only money, take off your Apple glasses.

They didn't really hire him, they just bought his company because it had a product they wanted.

“That is total political crap,” Cook fired back. He said he’d “love to bring it home” but doesn’t because “it would cost me 40%... and I don’t think that’s a reasonable thing to do. This is a tax code, Charlie, that was made for the industrial age, not the digital age. It’s backwards. It’s awful for America. It should have been fixed many years ago. It’s past time to get it done.” I'm a little insulted by the fact that Cook thinks it's up to him to decide whether or not his company should be paying taxes. Obviously they've found a loophole, but his phrasing suggests he's doing it for the greater good. Maybe if Apple and similar huge companies actually paid those 40% (I doubt it's that high a percentage) to government, public school could get more funding, etc. and the US wouldn't need as much philanthropy.

> I'm a little insulted by the fact that Cook thinks it's up to him to decide whether or not his company should be paying taxes

This is not that uncommon among affluent people to think that they shouldn't pay taxes,in fact they have the money to set up schemes in order to not pay any.

That's naive: they did pay taxes already, on earnings in the countries of the earnings, and are saying that, for example, the Brazilian company Apple Brazil, paid up on Brazilian income tax for work done by Brazilians in Brazil, should not then pay 40% more to the United States for work done in Brazil.

It's not about paying 40% more -- tax already paid to foreign governments is deducted. So the total tax is 40%, with any tax not paid to foreign governments going to the US government when the profit is repatriated.

Talk to your government, vote, make things happen. Thats up to you. If the government established a law, Apple and others would pay or course. On the other hand, if compaies paid more then required, management would be sued by shareholders to oblivion. Want to change that too? Vote, make things happen.

Such faith in our poor implementation of democracy.

Of course it's up to him.

If I were an Apple stockholder, I'd be livid, if they would have decided to pay up 40% on those 74 billion.

In fact, everyone decides to a certain extent the amount of tax they pay via choice of residence and career to a lesser degree.

And of course 40% is an insanely high amount. USA has one of the highest corporate tax rates in the world (https://en.wikipedia.org/wiki/List_of_countries_by_tax_rates).

As a taxpayer you should be livid for the opposite reason.

I'm livid that the US politicians have created a tax system so complex that only the wealthy can capitalize on most available advantages.

Per wiki, 35% + up to 12% of State/Local income tax; less any foreign tax already paid (as tax credit); less any other deductions and credits. Per http://www.politifact.com/punditfact/statements/2014/sep/09/..., the reality is more nuanced. The World Bank and International Finance Commission puts the United States’ effective rate for 2014 at 27.9 percent.

It should be noted that value-added-taxes (VAT) seem to go from about 10 to 20 percent. The US doesn't do VAT; it's largely state and local sales taxes where applicable, generally less than 10 percent.

Insulted? Apple paid taxes on foreign earnings by foreign branches in the countries where earnings occurred. What nonsense is being dismissed is the idea of then paying duplicate income taxes, on the same earnings, to a second foreign government: in this case the United States. It's obscene to think it makes sense. The fallacy in perception is a political slight of hand to fury fund a way too hungry big government many would say.

No they don't - in Europe they managed to cut a deal with Ireland such that only their Irish generated revenue was taxed in Irleand but all other European revenue was booked against their Ireland business so was completely untaxed

Apple have not just followed the law as written - they have carved out specific tax exemptions for themselves.

> Apple have not just followed the law as written

I think they have followed the law as written. Some people just don't like how it was written and some of the effects caused by how it was written.

You missed the word "just".

It's unclear what "just following the law" is as distinct from "following the law".

Can you help me understand the difference?

What law(s) have they violated? Have they "just violated them" or just "violated them"?

The sentence means that Apple haven't simply / only / just followed the law as written, they have gone further than that and carved out specific exemptions in the law for themselves.

When you said, "I think they have followed the law as written." it sounds like you are challenging a claim that they haven't followed the law as written, but that wasn't the intent of the sentence. More clear? No laws were violated.

A) I have not hit you, I have given you a hug. -> you did not get hit, you got a hug

B) I have not just hit you, I have given you a hug. -> you got hit AND you got a hug

Apple didn't just follow the existing law, they wrote their own addendum.

So the double Irish is cool?

https://en.wikipedia.org/wiki/Double_Irish_arrangement

That's not correct. Apple do not pay income tax here in Norway even though they obviously sell a lot through the Apple Store. They "pay" tax in Ireland, which I assume is next to nothing. The argument is not about paying duplicate income taxes. It is about Apple and others using loopholes to get income in countries with low/zero tax rate instead of the country they sell in or actually operate in.

"Apple do not pay income tax here in Norway even though they obviously sell a lot through the Apple Store."

Corporation taxes are levied on income, i.e. profit. Yes, Apple sells a lot through the Apple Store in Norway, but do those stores make any profit?

The retail margins on Apple products are tiny. Try negotiating a discount on an iPhone from an Apple reseller. Would the Apple Store (which probably has a much higher cost base than a normal Apple reseller) make any profit? If not, why should they pay corporation tax?

> Would the Apple Store (which probably has a much higher cost base than a normal Apple reseller) make any profit? If not, why should they pay corporation tax?

You're joking, isn't?

> Yes, Apple sells a lot through the Apple Store in Norway, but do those stores make any profit?

My mistake: I meant the App Store not a physical Apple Store. We are not worthy of that yet here.

Is the App Store based in Norway? If not, why would it be subject to corporation taxes in Norway? Just because it has customers in Norway? Would you expect a SaaS provider in Norway to pay corporation taxes in the US just because it has customers there?

This is exactly what the discussion regarding digital sales is about. Apple has set up their store in Ireland even though it is an American company. They have people employed in Norway and sell to Norwegian customers but pay no taxes as sales are made through Ireland.

I expect that a company pay taxes where they realistically operate. I don't think it's fair to set up shell companies in countries where they have no real operations. A company uses a lot of state resources that are paid through taxes. Without contributing they are cheating the rest of the people in a country.

"I expect that a company pay taxes where they realistically operate."

Would you expect a SaaS provider in Norway to pay corporation taxes (i.e. a tax on company profits) in the US just because it has customers there?

What about state and federal sales taxes?

Would your answer change if the company were to have a single marketing employee based in the US?

What if none of the company's customers are in Norway, but all are in the US? Should the company pay profits taxes in Norway, the US, both, or neither?

To say it is a loophole makes it sound like only a few use it or that it's some obscure detail that allows for this. As far as I know, this applies to every foreign company and is very clear from tax law.

It's quite a deliberate international network of companies purely set up for the purpose of not paying tax. I would say it's a loophole even though it also consists of obviously legal and locally encouraged practices such as setting up a company in Ireland with a low tax rate. But yes it's an issue with lack of international agreements to avoid situations like this with huge corporations not paying tax locally and small businesses in the same area paying high local taxes.

> Insulted? Apple paid taxes on foreign earnings by foreign branches in the countries where earnings occurred

Apple some year has declared losses in Spain, so they have have tax benefits.

They didn't paid any tax but they have received money form the Government because they lost money.

Really?

> in the countries where earnings occurred.

Do you really think Apple makes the majority of their income in Ireland? On paper they do, if you follow the twisted winding path of tax codes from the United States through Denmark to Ireland.

This is naive.

Apple US sells Apple Ireland a macbook pro for 1000$. 1000$ is what it costs Apple US to get it from China, so no taxes as there is no profit.

Apple Ireland sells that same macbook to Apple UK for 2000$. Apple Ireland realizes 1000$ in profit, and pays the Irish rate on that profit. Apple UK pays no tax, because they bought the machine for 2k and sold it to consumers for 2k, giving them 0 profit on the sale of a new macbook.

Using this shell game i can realize 100% of my profits in any particular tax jurisdiction that I want; regardless of where sales are actually made.

I now pay 0 taxes in the UK regardless of whether I sell 1 unit or 1 billion units in the UK.

Do you think this is above board?

Do you believe that the company selling 1 billion units and paying 0 taxes represents an equivalent burden on society to the company selling 1 unit and paying 0 tax?

Does this company not use the publicly maintained roads? Airports? Are its UK workers not kept healthy by the publicly available health services?

Sure apple paid all of its legal obligations on its 0$ of profit in the UK - how they ended up with a reported 0$ profit in the UK is something worth having a conversation about.

The US has one of the worst if not worst tax codes in the world and especially for business. Plus the simple fact remains, businesses only collect taxes, if they have not sent them in then all they have done is not sent the money every supplier, customer, employee, and shareholder, has paid as a tax.

Indirect taxes are the big slight of hand that all governments use to keep their people from knowing just how large of a tax burden they truly have. The US went further with withholding taxes.

Yeah, morality aside, it's very interesting to think about all of the taxes that Apple has already paid in various countries: sales taxes (and/or VAT), payroll taxes, income taxes for their employees, property taxes. (And that excludes things like health care plans, pension plans, etc.)

What specifically is he talking about here? If we're talking about manufacturing, a tax code for the "industrial age" seems about right. If it's about digital content distribution (itunes etc.), okay, but what works for steam engines but not for laptops?

To me, it's no different than me buying raw ground beef (not taxable to me locally) vs a prepared hamburger (taxable to me at 7% locally).

I'm free to choose between those, but when I buy raw ground beef, I'm not evading taxes and I assume you don't feel insulted by the fact that I think it's up to me whether or not I pay beef tax.

It's a choice I make in the face of a multi-dimensional optimization problem, same as Apple is doing on a scale 10^9 larger.

This analogy doesn't really fit the argument. Apple is selling things and profiting but you are talking about taxes on buying things.

I'm also using a very simple example to talk about making specific choices on which legal action to take in the face of varying tax incentives, which is analogous (though not identical) to the choices multinationals face when deciding whether to do X, Y, or Z.

(where X might be "do foo in one jurisdiction" and Y might be "do foo in another jurisdiction" and Z might be "do bar instead")

Apple sells it self its own product at rates that would guarantee that they do not pay taxes where they do not want too.

> Obviously they've found a loophole

Yes, Apple and any number of other companies have all cleverly discovered the sneaky loophole that was created unintentionally and has been left open purely by oversight for lo, these many years.

If the loophole wasn't created at the behest of lobbyists, it's been kept open and/or widened by lobbyists. Whether or not Apple itself had anything else to do with that, it's part of the playing field now and it would be corporate malpractice not to use it. The way for a company to help fix this problem is not to become less competitive on principle, but to use their lobbying power to adjust the whole playing field.

Apple couldn't move their manufacturing out of China even if they wanted to. As soon as they started making motions that they're going to the Chinese government would slap a levy or a ban on the export of some key material component in order to protect their manufacturing industry. Foxconn employs more than a million people, and there are many times that number once you include the whole supply chain. No government is going to let a significant part of that leave their country.

> No government is going to let a significant part of that leave their country.

Well... the US did, which is why we're in the situation we did.

The USA used to have skilled factory workers until jobs went overseas for factories. Now almost nobody studies how to work in a factory because of lack of available jobs in the USA.

If you want to bring back the jobs to the USA you have to get more people to study how to work in a factory again.

The US still has a large number (~12M) of largely skilled manufacturing jobs, and manufactures more product (~$2T) by $ value than anywhere else in the world but China. It just needs fewer workers per $ produced than it used to.

There's nothing about either of those trends that's unfortunate.

And neither is unfixable, it will however impact cost and that's why I think that Tim Cook is not entirely honest here. You can get all this done locally, the skills are there. But those skills are expensive because the same skill level person in the US has a different pay than the person in China. Eventually that advantage will erode and then the locusts will move to the next available third world economy (likely India, or maybe even Africa).

Many companies are moving already to countries like Cambodia or Vietnam because China has become "too expensive".

But those skills are expensive because the same skill level person in the US has a different pay than the person in China.

I don't think that's true, or at least, not true for the vast majority of workers.

A typical US manufacturing worker is an order of magnitude more productive (a good, if imperfect, proxy for skill) than a Chinese one, and if anything is underpaid for the value they provide. China just has massively more labor available.

How many Americans actually want to go back to a low-cost assembly based manufacturing economy?

I'm a Brit and recently had a rather weird experience as a friend of mine waxed lyrical on the one hand about how Britain needs more honest manufacturing jobs because that's how wealth is created, while also talking up how great his Son's private school is and that he's got a fund set aside for the boy's University education, probably in the arts. It was more than a little surreal.

The fact is UK manufacturing is actually doing pretty well. It accounts for 12% of the country's output compared to a high of 25%, and has mainly migrated into higher value engineering and design. So yes it's a lot lower than during the 70s proportionately, but they are predominantly much, much better jobs. What we should be doing is what my friend is actually doing versus what he was advocating. Educating and investing our way into a higher value economy.

If I knew there was a future in manufacturing I wouldn't had bothered with college except to grow my knowledge for its own sake. Factory work that pays well enough to take care of my bills and leave with more than enough to save up for things is IMO better than risking it all in a college degree that may be worthless due to shifts in career news hype.

> "I mean, you can take every tool and die maker in the United States and probably put them in a room that we’re currently sitting in."

Don't know how big that room is, but you could probably fill it with the toll and die makers in my extended family and their coworkers. I get his argument, even if I don't buy it, but that's just an insulting remark.

It's a ridiculous soundbite which I am sure was devised by a PR hack.

There are probably enough US tool makers with YouTube channels to fill a room! (I subscribe to many of them)

If he were honest it's probably because China is cheaper but also because it's much easier. They can order a product, at crazy high volumes, and let the Chinese figure out how to scale. And afterwards there is no bad press when workers are fired.

NL is a lot smaller than the US (17 M vs 300+M inhabitants).

We have 100's of tool-and-diemakers here, I think Cook will need a slightly larger room for the US ones.

But I can see why he doesn't actually know about this, tool-and-die makers are not exactly hobnobbing with the jet-set. And don't forget that tool-and-diemaking is a specialization from being a machinist and you could probably find quite a few of those and train them to become tool-and-diemakers. The (much harder) sub-discipline is the one of moldmaker, and of those too there are (still) quite a few.

Cook being the one who fine-tuned Apple's operations to perfection I think he knows a lot about the things he talks about.

Cook being a public face of Apple, I think he makes deceptive public statements to protect Apple, regardless of what he knows.

> Cook being the one who fine-tuned Apple's operations to perfection I think he knows a lot about the things he talks about.

I'm sure he does, which makes it sadder.

It's a misdirection from Apple. If the number of tool and die makers in China is way bigger than in the US, that means that the market in China is way more competitive and Apple can get a better price.

“The U.S., over time, began to stop having as many vocational kind of skills,”

Over time... Just happened...

As if this wasn't a concerted effort on the part of american-based multi-nationals to move the entire supply chain to cheap-labor, non-existent environmental control countries. They wanted to arbitrage the consumption power of salaries in the west by not supporting them out of profits, but rather out of debt.

REEEEEEEEEEEEEEEE

A lot of manufacturing capabilities have moved. I am engineer not even mechanical, but occasionally I will have to make prototypes. Maybe it wouldn't be super pretty, but if I had six weeks I think I could become proficient enough to make a pretty good units. These aren't super complicated parts, but does require soldering, box cuttings, wire routing etc.

The submission title is a bit misleading. First I read it as "the reason Apple products aren't made in China is because that would be cheaper".

Perhaps rephrasing to "Apple products are made in China not because it's cheaper" would be less ambiguous.

Nice PR misdirection, Tim.

Apple is the kind of company that will skimp on updating base storage to 32GB on their €650 smartphone because it might reduce their margins by 0.001% (number pulled out of my behind but you get the idea).

It certainly IS because it's cheaper.

What?

The base storage is low to get you to buy the upgrade. Cost is irrelevant.

Of course cost is relevant. It's all about the cost in the end.

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