How China Captured Apple

From the Free Press, this is Honestly and I'm Mary White. The majority of people listening to this episode right now are listening on an iPhone. As most of us can attest, even if we're not proud of this fact, The iPhone is so central to our lives that when we lose it, we can feel totally unmoored from our ability to function normally in the world. Or maybe that's just me.

It's hard to explain how ubiquitous the iPhone is and how much of a behemoth Apple is. The company that manufactures the iPhone sells over 60 million iPhones in the US a year. A single plant can make as many as 500,000 iPhones per day. And in 2024, Apple brought in a total revenue of $391 billion.

The rise of Apple and the iPhone didn't happen by accident. The fact that we all walk around with the most sophisticated technology in our pockets for about $1,000, sometimes even less, is the result of two forces. The current CEO of Apple, Tim Cook, and America's largest geostrategic and economic rival. Few people are better prepared to discuss the symbiotic relationship between Apple and China than Patrick McGee.

A longtime business journalist who has covered Apple for the Financial Times, McGee is the author of Apple in China, the capture of the world's greatest company, which hits bookstores today. McGee makes the case that Apple became the world's most valuable company by wedding itself and its future to an authoritarian state. As the president and others talk about decoupling from China, Apple's exposure isn't just a liability for the company. It's a liability, he argues.

to our national security, our own workforce, and our future. how China came to dominate Apple's manufacturing supply chain, how its totalitarian political system and labor practices lured Apple in, and how Apple's decades-long transfer of knowledge and capital into China has made it nearly impossible to leave. And why the conventional wisdom which is that Apple would not exist in its current form but for China

actually works the other way around. As Patrick argues, China would not be China without Apple. Stay with us. When was the last time you barely made your flight or had to fill out extra paperwork for your doctor's appointment or had to reset your password for the umpteenth time? In today's fast-paced world, there is no time to waste. That's why there's Clear. Clear makes experiences safer and easier both physically and digitally

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If you got a post-purchase survey, tell them you heard about Cozy Earth from Honestly with Barry Weiss. Better nights await you at Cozy. Patrick McGee, welcome to Honestly. Thank you. Okay, so the majority of people who are listening to this conversation right now are listening on an iPhone. Some 155 million Americans have an iPhone, a number that kind of blew my mind. And you make the case that

Those numbers never would have happened had it not been for China. Oh, unquestionably. I don't even know what the counter argument of that would be. Well, make that argument. I mean, where my book gets novel is that, like, I think it's... Fairly straightforward that China is the only place on the planet that has the tech competence in terms of manufacturing capability, certainly the price, the cost, the quantity, the scale.

My novel argument is that it has those skills because Apple built them there. It's not that China offered something to Apple. Apple didn't find these skills in China. It shipped people over by the planeload and created them. And so it's this another layer of nuance that Apple is dependent on the very capabilities that it created. and

I think this is like the biggest untold story in tech over the last 25 years. And like my job was on the floor as I talked to 200 people and sort of unraveled it all. But I mean... Some of the numbers, like anytime you're dealing with Apple, the numbers are just crazy. And so the two numbers that really stick out at me are that the number of people they have trained in China since 2008 is 28 million. Okay, so that's larger than the labor force of California.

the investments they were making in China by 2015 were 55 billion dollars a year and that's such a large number that I couldn't find any corporate equivalent So I had to go to nation building efforts. And I took the Marshall Plan, the most famous nation building effort ever, converted it to 2015 dollars, and you realize that Apple is investing in China twice that of the annual spend of the Marshall Plan.

And the Marshall Plan is for 16 countries. The Cook Plan, if you will, reference to Tim Cook there, is in one country, right? And it's obviously the chief adversary of the U.S. So once I started putting those things together, it was like, oh my God, there was a remarkable story here. Given the numbers that I've just put out there in terms of the penetration of Apple's key product in the American marketplace.

And the numbers that you put forward in your incredible new book, which shows the extent to which Tim Cook and Apple have invested in China and arguably

transformed it. You'll make that case, I hope, in this conversation. Why is it a story that has been so sort of undertold? There's so much to unpack there, and I've got sort of several answers. So one answer is just that... COVID made supply chains and the resilience of supply chains, or rather the fragility of supply chains sort of a headline, like a front page story all over the world, right?

And so I think before that happened, supply chains were just sort of considered boring right they might be like the um nervous system of globalization but if i said i've got a great supply chain story for you you know you've already lost interest right if i've got a sexy apple story for you You probably are interested, right? It's such a sexy iconic company.

And so COVID sort of helped in that regard. I guess the other thing is just that because we don't manufacture very much, I mean, if you're a tech reporter in Silicon Valley, you're not really covering manufacturing, right? I mean, all the other big giants. maybe Tesla excluded are doing some form of like digital advertising or in the case of Amazon, you know, logistics, but they're not doing manufacturing. I mean, Apple is really unique in being a hardware company.

And the whole story is in China. And there's two problems with China. One is that it's a censored media landscape. So there's really not any original reporting that's like truly groundbreaking coming out of the country because they can't really report on it. All the Apple people that were orchestrating these events the last quarter century are under NDA so they don't want to talk So the distance of time, if you will, really allowed me to get into the story because some of the biggest like...

the political awakening that Apple has since 2013. Well, you couldn't have really told that story then because all the key players involved were wedded to their jobs and actually doing, you know, performing the action. It's only a decade after the fact that they've sort of moved on and they can talk about it and they have some distance and so forth. So I think there's several answers and I hope I've pointed to a few.

But I would say that, especially when I was pitching the book two years ago, I mean, the biggest mystery to me was why hasn't this book already been written? Because it's not a brilliant idea. I mean, did anyone try to write it as far as you know? No. Well, okay, there's one other. So Wayne Ma at The Information I know is pitching basically what sounds to be a similar book at around the same time.

and I wish he had also gotten a book deal. My understanding is that my book deal sort of killed his. And that's really unfortunate because he's a great reporter and I would have loved to see what he did with the same topic. And he's based in Asia and I'm sure he would have had, you know, different things.

maybe would have cannibalized each other's sales, maybe would have heightened each other's sales, but he at least had the same idea and he's done some great reporting. Okay, Patrick, let's go back in time because I want to explain for the listener who just broadly knows, okay, Apple, you know, they make their products in China, but they didn't always, right? And your book sort of traces the evolution of how China became the place for Apple. I want you to tell the story of how it goes from

products being manufactured in places like Ireland and even California to Asia. So the traditional narrative is that Steve Jobs comes back from his 12-year exile in 1997. He realizes that there needs to be something done differently about manufacturing. He hires Tim Cook and Tim Cook outsources everything to Asia and closes the factory. That's really simplistic. It's more like a seven-year narrative. Beginning when?

So before Steve Jobs comes back in 1996, Apple has its worst year ever, and it really is on the brink of bankruptcy. So I think I reveal for the first time that they actually hired a Chapter 11 lawyer. and they were days away from making payroll.

And I really try to emphasize that, especially because younger people who only know Apple is the dominant company. I think we need a better understanding of just how close this company came to never existing or not never existing. I'm sorry, but, you know, to never. becoming what we take for granted today. So yeah, Apple's founded in 1976 by two guys named Steve in a garage. globalization at least for the electronics industry basically doesn't exist at that stage i mean that's the mainframe era

And so you just think about how big a computer is. It's like the size of a garage. It was never going to make any sense to build those in Asia and then ship them over the seas, let alone in an airplane, to get them to people. So much happens in the 80s and 90s. that ends up really hurting Apple because the PC was first made by IBM and then cloned by everybody else.

Those are the companies that they're not fighting on all the things Steve Jobs cares about, like usability and the graphical user interface and stuff. They're fighting over things that he would have thought of as mundane and boring. Frankly, stuff that you and I would think of as mundane and boring. Distribution, logistics, etc. They're not fighting over software. They're all using Windows. They're not fighting over chips. They're all using Intel. And so their whole...

fight between IBM, gateway, Compaq, Dell. It's all just about this boring stuff. Apple is really struggling to compete with them. And so even though arguably Apple has a better product throughout the 80s and the 90s, it's nearly bankrupt because it can't compete on price and manufacturability of all these others. So it's really that it's near bankruptcy that it has to adopt a global outsourcing strategy. But that happens before Steve Jobs comes back.

which is interesting so he accelerates it and he has tim cook come in who's this like 12-year veteran of ibm so he knows just-in-time production and that sort of stuff really well And China is not the answer at this stage. It hasn't entered the World Trade Organization. And so like the translucent candy-colored iMac, that's built in Korea. And then people don't really know that. Apple sort of has them expand and they build it in Wales and they build it in Mexico.

And then we have Foxconn coming on board and Foxconn is really the one that paves the way for China. But again, they're still in this experimentation stage where Foxconn is also building in the Czech Republic and they're building in Fullerton, California. When does China sort of lock in as the main place? So China, like the first candy-colored IMAX made in China roll off the assembly lines in 2000.

The first iPods are still being built in Taiwan. So the first iPods are 2001, and they're made in Taiwan for several years by a company called Inventech. And then China just begins to just win out. So like. once China enters the WTO, basically what that allows them to do. In what year?

I'm sorry 2001 so same year I mean literally within two months of the iPod going on sale right so there's this like great meeting of the moment between Apple's needs for scale and China's ability to you know accept that scale and So what ends up happening is they've actually consolidated most of their production to Taiwan at this stage. And Apple begins to be ludicrously successful with the iPod after two years of it actually kind of failing.

And Taiwan is just too small. So I have these chapters in the book where they're trying to build iPods and they're trying to build the sunflower iMac. You might remember it sort of looks anthropomorphic like a Pixar lamp. It's really sexy. And my God, is it a complicated product to build. And so Apple's trying to do it in Taiwan, but with the help of Singapore, Japan, basically all of Southeast Asia, including China.

but the more you're doing things a little bit in China and comparing the costs, the flexible demand, labor and they're just like armies of affordable labor the more it looks like China is the way to go and they just rapidly begin to consolidate in 2003 so the sort of fun line I have is that in 1999 Zero products from Apple are being made in China by 2009 virtually all of them are and that transition I compare to a geopolitical event like the fall of the Berlin Wall

but it took place over many years, and it's one that I don't think we've really grappled with or understood. I love that Berlin Wall line. I want to get to it in a bit. Before we do, I want you to explain to people, because I think it's just really interesting, the relationship between... Steve Jobs and Tim Cook because Steve Jobs is sort of like the great innovator. Tim Cook, who is frankly far less interesting I think to the average person, is like the great distributor.

Tell us about how they worked with one another. Give us a little more color on their relationship. Yeah, so Steve Jobs makes Apple products unique. Tim Cook makes them ubiquitous. That's the key kind of difference. They're similar in that they have like zero tolerance for defects. They're real perfectionists.

but it's really interesting being able to speak with Apple executives who worked with both. So I quote someone saying, it's really tough to work with Steve Jobs because emotionally he could go from zero to a hundred in a matter of seconds. Tim Cook would go from 35 to 36. Right. And somehow that was actually more disconcerting because it's so different.

and you never really know where you stood with him. So he would hold these meetings, like the first meeting he held with all his worldwide managers ran for 13 hours. and it's because he just goes after this level of minutiae that he expects everybody in the organization to understand and go through. So for instance, when he first held these meetings,

Some of the people had glasses, some of them didn't. After a few years, everybody that reported to Jim Cook had glasses. And it's because they were just going through Excel documents, you know, hour after hour, looking at every product, every region, you know, down multiple levels of detail.

And when I talk to people who would submit, you know, let's say a 40 page report, like he would zoom in on like page 32, go to some footnote and want to talk in more detail about that. So he is just like ridiculously detail oriented, but he's not detail oriented about the product. Certainly not the product design. That's somebody else. He's detailed about the operational efficiencies and sort of squeezing every last penny out of. So, you know, if there's a rivet costing fractions of a penny.

but you're doing 200 million of them, that adds up and nobody knows that more than Tim Cook. If Tim Cook had not been in the picture, would this story have happened the way that it did? That's a great question. I would actually advocate that he would, I would say he should not have been made CEO.

in 2011 now to some extent that sounds like an insane thing to say because when apple became worth three trillion dollars in 2022 I stunned myself at 3 a.m. doing the math, realizing that from the time he took over in 2011 to 2022, Apple's market value had gone up $700 million per day.

Right? Like, doesn't that sound like I'm obviously off by an order or two of magnitude? Yes. And it's not. And people thought I was wrong. They said so in the comments. They said so on social media. And I just had them do the math until they realized it. We just don't understand how big things are. Whenever you're talking about Apple, you have to give analogies, right? Because otherwise people just like their eyes glaze over when you say billion this, trillion that.

So how can you make the argument that Tim Cook should never become CEO, given that? I don't think Tim Cook was ever going to go. He loves Apple. And so I think the operational efficiencies that he was already giving Apple.

he was going to stay with them and give them to Apple anyway. In other words, I don't know what benefit you derive. Why do you think Steve Jobs chose him? Ah, well, so, no, that's interesting. So because I think Steve Jobs realized that the products he conceived or, you know, that he sort of oversaw the conception of.

they were there to stay and that you needed someone with a day-to-day operational knowledge to scale them globally. And nobody could do that better than Tim Cook. My point is Tim Cook would have done that anyway. But you didn't need to give him the CEO title. Correct. I mean, that's my argument. I don't make that argument in the book, but that's how I feel about it. Mm-hmm. Yeah. Okay.

Let's go deeper into something that you said a few moments ago about there were manufacturing parts of one product in Taiwan, another part in Singapore, but given the efficiency... I think you said also the flexibility of the labor market in China. It just became absolutely clear that things were going to be much, much more efficient and smooth if these products were made in China. Let's use that as a way to talk about just table setting for people about

how labor works in China. Because most people, when they think about this topic, maybe they'll remember, I certainly did before I read your book, the headline of the net. right outside of the manufacturing that was like capturing, trying to catch people that were jumping to their deaths out of despair working in these factories. It's an image that will always stay with me. How typical is that? Is that a

story that is unique to Apple, or is this just sort of the rules of the road for manufacturing in China? I love these big questions. These are hard to answer because they're really big questions. Okay, so let's first talk about the labor supply because I don't think it's well understood. Yeah. I'll try not to get too wonky on this, but cities like Shenzhen, where the original Apple products are built, just across the harbor from Hong Kong, were like capitalist experimentation zones.

separate, in a sense, from the rest of the country. And they were created to lure in capital, foreign capital. And for the first time after the Cultural Revolution era of Mao and whatnot, people were allowed to leave the village of their birth and go work on the coast.

working in these cities. That was illegal under Mao. You couldn't leave your village, essentially. So Deng Xiaoping makes that possible. And what you have is just Shenzhen just absolutely flourishing. So in 1980, it is not really even a city. It's a series of fishing villages, population 70,000. Today it's a population of more than 7 million and far more skyscrapers in Shenzhen than there are in New York City.

Foxconn places absolutely instrumental role transforming that city. Probably worth unpacking that Foxconn is not Chinese, Foxconn is Taiwanese. And so in 1987, there's sort of a detente between Taiwan and China and businessmen from Taiwan are allowed to go to mainland China and the Taiwanese who are experts in manufacturing at this stage. begin to take advantage to an unprecedented degree of the labor coming into Shenzhen.

So you've got all these people leaving the hinterlands where their alternative is like a 14 hour day toiling in the agricultural fields under the hot sun and they're okay doing a 12 hour shift in a factory instead.

So Apple is not at all unique setting up production in China. If anything, they are late. Like, I'm quite sympathetic to the idea that Apple didn't sort of hollow out American manufacturing and move things to China. Like, they're the ones who were trying to build in America and they couldn't. because everybody else had moved, and so their costs were too high. So I'm deeply sympathetic to that period.

And of course, Washington at the time was very much encouraging the trade because we really thought we were going to inculcate the next great democracy. Well, let's pause on that for a second to just explain to people what you mean by that. The idea of allowing China into the WTO in 2001, two months as you note, after the iPod originally came out, was this idea that

capitalism is allowed to flourish inside China, then democracy and maybe even liberal democracy would necessarily follow. And this was sort of the consensus view. among liberals and conservatives that worked at the Wall Street Journal editorial page. That's 100% what they believe. And this is something that obviously did not turn out that way.

the market flourishing, but not at all the liberalization, the political liberalization. Yeah, so in the 80s, Ronald Reagan was calling China a so-called communist country, right? Because it looks so obvious that they were moving away from... The communists. world view and adopting capitalism and some of my most or at least in my opinion fascinating chapters right are trying to explain that, to quote the title of a book, China was a dragon wearing a three-piece suit.

In other words, they were sort of doing a fake it till you make it type thing, but they weren't actually becoming Western. It just appeared that way because they understood the optics were good for investment dollars coming in, but they were pretty adamant. that the communists were still going to maintain a great degree of control. And frankly, we probably did a really poor strategic job of being so public and arrogant.

of saying well because western policymakers like bill clinton and and and others were basically saying like good luck maintaining your communism as the internet rolls through your country, right? And so we were basically proclaiming that we were doing these trades with the established goal that this was going to cause the downfall of the Communist Party. So, of course, if you're in Beijing, you're thinking, well, what do we do to actually ensure this doesn't happen, right?

Strategically, I think that was sort of inept on our part. Well, if you are Xi or you're in the Chinese Communist Party and you think, what can we do? Well, maybe the story looks a lot like what China just did with Apple over the past two decades. In other words, lure American companies. You know that manufacturer products that Americans are unbelievably dependent on yes and make it so that the our most

our wealthiest, most valuable companies are completely dependent on an authoritarian regime. Yeah, I mean, I think throughout the 2000s, Apple, this would be true of other companies as well, but obviously I focus on Apple. Apple really would have thought we're calling the shot. These suppliers are bending over backwards to do whatever it is we need of them, and we're reaping all sorts of profit from this, right?

in the long term I think China was getting pharma out of it because if for whatever reason China cancels Apple's export license tomorrow it's not like we can just start making iPhones here we have no idea how to make them or even if we have the idea like even if Apple has the experiential know-how we can't execute the plans at all.

And I want you to explain why that is. There's so many reasons. I mean, there was an analyst who was quoted a month ago, and I thought this is a pretty good quote, and yet it doesn't even really come close to the reality. So let me explain. So the analyst said There's so many people working on iPhones that it would be like if the city of Boston 500,000 people just gave up what they were doing and they all started working on iPhone production.

That's a great quote, except that what it doesn't account for is that what China really relies on is a floating population. So it's actually more like the 500,000 people in Boston would work on iPhones for a couple of weeks, and then the entire city would get up and go to Milwaukee or something and work on some other projects.

Right. So like not only do we not have the density of population, we don't have the dynamism of the population. OK, I want to push maybe a little bit on that word dynamism. Isn't it also the.

servitude of that population maybe that word is too strong for you but yeah you know most Americans even people that are willing to work very very hard do not expect to work 14 15 hours a day in a factory with no weekend No, and the line I like to use is that not only do Americans not want to do these jobs, the Chinese don't want to do these jobs.

So I have this stunning example. I think it's around 2014, and I'm quoting myself in the free press because I put it here. But there's a Pegatron facility that had a standing state of 100,000 workers, but they were losing 25,000 workers a month.

So they were hiring 25,000 workers a month. I mean, good luck competing with that sort of dynamism, right? We just don't have factories that size, but we don't have factories where we would even have 25,000 new people to... to go through so i've got all these internal documents about it for instance and like the average worker was staying at the company less than 65 days right so the churn is absolutely amazing and you can only have that churn if the population is sort of

Like, again, not to get too wonky, their residence is in rural China, in the West. and they're not allowed to raise their children in a city like Shenzhen or Suzhou or Shanghai. And so they're working in these factories on a temporary basis, and then they go back to see their children, sometimes only once a year at Chinese New Year.

but again so like not only do we do we can we not replicate that we wouldn't want to replicate that right and that's so that's what makes it so hard to compete with Because in addition to the density of the population and the low wages and stuff that we can't compete with, like at a sort of philosophical level, this isn't what you and I would want our kids doing.

And it only sort of is possible because of a certain desperation on the part of, you know, even though China is a very rich country, there are still hundreds of millions of people that have just a high school education and are willing to do these jobs.

So. Given that trade agreements don't really have environmental standards that are codified across the world or labor standards that are codified across the world, China is just able to compete on a level that we're just never going to be able to grapple with. from Apple's perspective. China looked like it was bending over backwards to Apple. Did China actually in fact have a grand strategy in place?

Yeah, I think that's abundantly clear. The line that I use in the introduction is that our understanding of Apple is one of Apple exploiting Chinese workers. And I flipped it on its head and I say Beijing is allowing Apple to exploit Chinese workers so that Beijing can in turn exploit Apple. In other words, Beijing understands that if we learn the foreign capital, we will learn the technological know-how and use that for our own means.

And so Apple in a sense is the most successful company at resisting that. But there are other examples where, you know, Western companies have done an awful job and just lost out on the order. So the sort of textbook example is high speed rail, right? China didn't become high speed rail. with a world leader by accident. They drew in Kawasaki, Siemens, Alstom and Bombardier and basically put them in a prisoner's dilemma of saying, do you want the biggest orders in your entire existence?

because we're building more rail car capacity than the rest of the world combined. And so any of those companies could have thought, huh, I could say no, but if my rivals say yes, they're going to be hitting all their targets, right, and distributing dividends to their shareholders, and I'm going to be left out in the cold. And so all four of them basically said yes. And China was able to basically quote unquote learn from each and then develop, synthesize what they learned into something new.

And then those companies basically lost all their orders in China over the next decade. And then when California was doing high-speed rail, it was the Chinese that were outbidding Siemens, Bombardier, et cetera, to win those orders.

So that's more of the textbook example. What's interesting about Apple is that they've actually been able to resist. They remain very successful. But of course, my whole point is that it's quite a precarious success. OK, let's talk a little bit more about the labor force. Because that seems to be the core piece of the puzzle here. We don't have floating work populations of 100. I mean, these numbers are insane. More people are floating workers in China than there are Americans working at all.

Say that again. Say that again, because that's astonishing. The estimates of the floating population. It's between 300 and 500 million people. These are rural people who go and work in these factories. They do 14-hour days and then go on to the next factory. That's what you mean when you say floating. I want to make sure people understand what you mean when you say floating worker. Yeah, I mean, so it's a number counted in the Chinese census. And it's between 300 and 500 million people.

There are a lot of examples in your book to choose from when it comes to explaining the conditions of people that work in these factories, but I want to just quote a relatively tame example. Chinese workers you talk about would be packed, and here I'm quoting from you, a hundred to a room, arriving with a few possessions and a bucket to wash their clothes in. overtime was mandatory and shifts could last for 15 hours a day.

One worker said, and this is a quote, we have to work too hard and I'm always tired. It's like being in the army. They make us stand still for hours. If we moved, we are punished by being made to stand still for longer. Okay, we've talked about how these manufacturing plants are generally run by this Taiwanese subcontractor called Foxconn. I want you to take us through, like imagine I'm a worker showing up at one of these factories.

Tell me what my average day would look like if I'm working making an iPhone in a factory. Great question. So if you're just the average worker, you could be trained in what your task is in about 20 minutes. And then your role would be to do something that takes maybe 9 to 11 seconds on a conveyor belt line for 12 hours a day. The same task? Yeah, just putting a camera module in the left-hand corner, something like that, you know, pinning in a little screw.

There are penalties for laughing, penalties for talking. the workers can actually get on almost like a runner's high, right? Just doing the same thing in a monotonous way where you sort of zone out and get this work done. And in the early 2000s, I mean, this was 50 cents an hour. So the thing is, Apple's not unique. I mean, Foxconn is supplying other companies, PC companies. But what I take away is that Apple sees the possibilities here.

that nobody else sees. And so Apple realizes, like the Johnny Ives studio realizes, we can make our computers madly intricate. And these workers on this conveyor belt will do whatever is necessary to make these products at the quality and finish, et cetera, that we want them to perform at. And so everybody else is looking to China for volume and cost, right? Margin.

and Apple sees unconstrained design possibilities. So it's not unique to be working with Foxconn. It's not unique to have the floating population work on your products. And not unique to be doing the same task for 12 or 14 hours a day. Well, Apple, I think, would ramp that up because of the other companies wouldn't have designs that necessitate the sort of manual labor that Apple needed. So I'm not sure that Dell would have the exact same conveyor belt.

I mean, you know, like, do you know the show Nathan For You? Yes. And he has this hilarious example. Do I need to explain what Nathan For You is? Yeah, you should. Okay, so Nathan For You, fellow Canadian, right, has this great show where, like, he's... posing himself as like a management guru and what's always funny is he has like new ideas for a business that have like a plausible ring to it but of course he takes them to comedic absurd extents and so in this one show he has house cleaners

I think 30 of them show up at one house, right? And they all have six minutes or something to perform their task, right? So he's sort of toying with Adam Smith's division of labor, taking it to an extreme and say, could we clean a whole house in six minutes? That's comedy. Apple was doing this for computers 25 years ago where the tasks were 9 to 11 seconds. So it took the Adam Smith division of labor idea to a point that is way beyond what a comedian thinks. is interesting, right? Or funny.

So it's like you have to just imagine like. Apple just saw something in China where they could have this like zero defect culture, ridiculously intricate designs, and they just had a realization of like, we can get this done in China. And nobody was competing with them on design. Most people are never going to go to China. They're never going to go to these places that you mention in the book.

They're not thinking about Chinese grand strategy, most people. They're thinking, is it ethical for me to own an iPhone? Yeah, and so just not being an activist, I don't really get into that question. I mean, put it this way, if there were a viable, you know, American, Canadian made, you know, phone that I could get instead of Apple, yeah, I would absolutely buy it. There isn't. More than one out of two phones sold globally are made in China. Or sorry, are Chinese brands.

Another fifth are Apple phones, which are all made in China. And really the only outlier these days is Samsung. So you can make an ethical choice to buy Samsung. And I do think they're made in a more...

Ethical way in the sense that Samsung is in South Korea, which is a thriving democracy and you know There's a free press that is able to cover those factories and has gone after workers that are gone after plants that have caused leukemia and their workers and stuff like not to jump ahead too much but like there's this narrative that a common westerner will will assume which is that oh tim cook and apple would very much like if china were to liberalize

I don't know that that's clear. I mean, the fact that there's like a media blackout on these issues. I don't think that's a common narrative at all. Oh, okay. I think the common narrative is much more... I mean, it's assuming a level of malevolence. It's assuming that, you know, of course, you know, these giant American behemoths benefit from outsourcing the most tedious tasks.

to a country where, you know, the workers expect to earn, I don't know how much they earn a day at these places. I know you don't want to talk about the tedium of it, but it makes it more urgent and real for a lot of people. But regardless, think most people would think that's great for Apple. Okay, well, I'm with those people. Maybe there's a difference between sort of like...

lay people, if you just interview them on the street, I think you're right about that. But I think journalists would assume Oh, you shouldn't hold Apple to account for bad conditions in China, because if they could change them, they would, but they can't. How does what you call low welfare and low human rights labor? Tell me how it benefits all of the different parties involved in the manufacture of Apple products. you know by having all this

all these facilities that are really like, you know, almost like made to order in a certain sense. Like if you're a factory developer and you're going to get new orders, the Chinese government will work with you hand in glove.

to build at just insane speeds where we would still honestly be doing the environmental paperwork by the time the factory goes up in China. And they're doing that because China's ability to scale is so dramatic that it basically undercuts international competition and literally plays a role deindustrializing all rival nations.

So like, think of like, just get outside the iPhone for a second. Think of a solar panel. I mean, those are created in the 1950s by America. And until the 1980s, I think we were doing 80 or 90% of the production. Now it's 3%. And it's 3% because China just made massive investments. And it has a political backing to make those investments. And it doesn't go after profit. I mean, so just a rant for a second, like there was an essay a month or two in foreign affairs.

And it was trying to make the case that America was still competitive and like, you know, eight major industries or whatever. But the metric it was using was ridiculous. Now the metric was profit. Okay, well, from a capitalist Western perspective, profit is the metric you should go after. And if you've got 40% or what have you of the profit in the industry, you would say, oh yeah, no, we're doing really well. The Chinese aren't after profit.

The Chinese are after razor thin margins and taking control of the sectors so that then nobody else can compete with them. And in the long term, they're the only ones capable of doing it. Right. So they're not after profit. And so this is really interesting when it gets to Apple supply chain, because what we have now, and I know you don't want me to fast forward.

But is that the Chinese companies, rather than the multinationals operating in China, they're the ones who can get the free land. They're the ones who can get the machinery and the subsidies. And what does that mean? That means that they can operate at lower margins. And so over time, more and more Chinese Red supply chain companies are taking on the orders at the expense of multinationals operating in China. And so you're asking, like, what does trying to get out of these low wage jobs?

They're taking over these industries to such an extent that we can't compete with them. I know this is an obvious question. Why do they want to take over these industries? Well, manufacturing is some absurd portion of their GDP. And, you know, one of the opening quotes of my book is from Made in China 2015. So like a Xi Jinping document. And it says, you know, without manufacturing, there is no nation. I mean.

So does that mean we're not a nation? Well, that's interesting. That's almost a quote of Alexander Hamilton, which is really interesting. So he has this famous paper where he argues that manufacturing will cement American independence. and after World War II, when America literally holds 50% capacity of all global manufacturing. we tweaked the model a little bit, and we said manufacturing is going to cement interdependence.

And in the four-decade battle with the Soviet Union, the reason why our economy did so well versus that of the Soviets is they were pretty isolated. from this global network. You know, think of Thomas Friedman. The world is flash.

No two countries that have McDonald's have ever gone to war with each other, right? He called that the golden arches theory of diplomacy. The rise of Japan, even post-war Germany, you know, with Volkswagen and whatnot, like South Korea, all these countries were based on trade. And by isolating the Soviet Union, we accelerated their demise.

We got arrogant with it in the 1990s, like the unipolar moment, if we're quoting Charles Krauthammer. And I think China could have been isolated and we could have had this opportunity to sort of... you know, boot out the communists and maybe then we could have integrated them into the

world economy but we thought no no no we'll actually just like have the communists join our system and then we'll work with them that way and whoops we accidentally enriched china's rulers and now they're in a better position than they ever have been they're pretty precarious in the late 1990s and we had a we had a position that i don't criticize like it was clearly wrong in retrospect But I take the arguments in good faith. Do you know what I mean?

Some of the scholarship that's coming out now is like, oh, the Americans knew all along that it was just Western businessmen doing this for greed and things like that. But I think there was a genuine sense that if you had You know, there's this quote, if commerce doesn't cross borders, armies will. And you could point to something like Taiwan. Taiwan is under martial law for decades before their first democratic elections in the late 1990s.

And because it's ethnically Chinese, we thought, oh, that's a great example. The Chinese in Beijing will do the same. And we made a strategic error. But I think the point you're making is to maybe put it another way. The CCP has a grand strategy. Absolutely. And they're thinking in terms not just of, you know, quarters and profits, but they're thinking in terms of... They're thinking in terms of centuries and they're thinking in terms of their grand vision of the Chinese place in the world.

contrast that with the mentality of someone, and I'm not picking on him, it could be any American CEO doing business in China, but the mentality of a Tim Cook, he's just not thinking that way, or is he? No, I think they totally sleepwalked into this. So my favorite quote in the book comes from a former vice president. We're having coffee. And he says, are you sure you're not overthinking your thesis?

You keep telling me about geopolitics, but I will tell you, I was there in the early 2000s when we were setting up our Chinese supply chain and we weren't thinking about geopolitics at all. Right? And I think exactly. Yeah, that's the point. That's my thesis in a nutshell.

You had no idea what you were doing. You were setting up operationally the world's most sophisticated supply chain and you made the rookie and calamitous mistake of putting all your eggs in one basket and the basket transformed into a surveillance state. Was there any... Were there any dissonant voices either inside Apple or inside the American sort of foreign policy or national security establishment during the years, especially of the early 2000s, but maybe even the 2010s?

who were warning and saying, no, no, no, no, this is not going to end well. So my favorite character in the book is a guy named John Ford. And he's this Mormon missionary who speaks pretty fluent Mandarin because he goes to Taiwan as a missionary. He's running the Apple Store during these insane years where the iPhone becomes the most conspicuous status symbol in the country that everybody wants.

And this is like such an insane narrative because these like quasi-gangsters recognize this opportunity that we can distribute iPhones across the country because at the time there's only four stores. for the iPhone or for Apple stores in the country. So this is 2010. So think of that one store per 350 million people. Okay. And they're only in two cities.

And so if there's a city like Chongqing, population 32 million, number of Apple stores, zero. If you can amass iPhones in massive quantities and go to Chongqing, you are the monopolist distributor of the world's most iconic product, and you're selling them double the price that they retail for. So he really knows China. He's got real street smarts. What he struggles with is communicating what's going on back to Cupertino. And so...

He's saying around 2012 to anyone who will listen, you're going to have some pretty nervous officials if we start building big factories in Vietnam.

and Apple just doesn't really get it and they're just doubling down and tripling down so that's one example and I've got a few others in the book but there's absolutely dissonant voices within Apple in fact I would argue you know how did I speak to more than 200 people it's because it's not that I spoke to 200 disgruntled former employees right it's that there's a lot of people within Apple including current employees

who are not happy with the consolidation into China over the last 20 years. And they're upset about it. And they will think very happily of Apple. Most of my sources give me the blue bubble back when I'm texting them right there on iPhones. But they don't love what Tim Cook has done in China. More with Patrick McGee after the break. Stay with us.

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Invest in thinking for yourself invest in seeing past the spin and invest in staying truly informed while supporting platforms like Let's talk a little bit about how China has benefited from Apple. You argue in the book that China wouldn't be China without Apple. I want you to explain what you mean by that. Yeah, that should sound totally unhimmed.

it does i mean apple wouldn't be apple without china yeah that's intuitive yeah china wouldn't be china without apple it's like what are you talking about it took me a long time to get there I think this will be a good answer. Let me sort of describe the pyramid structure to you. So we know the top of the pyramid. This is how a product gets made at Apple.

starts with industrial design okay so this is johnny ive with his sexy british accent explaining the look feel and substance of what an apple product is going to look like right his studio is the one that says we're going to have translucent plastics we're going to create an all-white product with a chrome chrome back and it's going to have a thousand songs in it

He sends it over the fence to product design. Okay, so from ID to PD. Product design is like fitting all the electronic components into said design, right? And you really can't push back against Johnny unless he says something that like, you know, it's like physically impossible. You have to do what he says. And so those people have to be geniuses in their own right to figure out how it can all work. The third group is my favorite.

group of sources. They're called MD, manufacturing design. These are the people that are usually based in California, but they fly out to factories in China and they co-invent either the processes or the parts or both. that are actually going to do this at scale wow and then once they figure that out it goes to the group

associated with Tim Cook, which is operations. And they're the ones who scale and they build resilience with the supply chain. So the MD people are figuring out what those nine second components processes on the line are going to be? Yes, and so what happens is you have these MD people going over to China finding that there's really no tech competence.

Like year in year out, Johnny I was coming up with designs that nobody has ever thought of before in the PC industry or the iPod or, you know, the phone industry. And so. There's no... I don't even think they're outsourcing in the traditional sense. Like you can't send over some blueprints and these Chinese factories just do what you need them to do. That is true of Dell, right? Dell's not sort of upending how a computer looks and feels every year, but Apple was. especially in the heyday.

And so they're going to, at first, dozens of factories, but later hundreds of factories. And not only are they like co-inventing processes and doing like proprietary software on the machines to make this stuff run. but they are purchasing the machinery. the hundreds of millions of dollars and then later in the billions of dollars right so in other words

You're not relying on a factory that has certain set skills. You're giving them those skills and you're spending billions of dollars on the machinery, allowing them to operate not just above their perceived capabilities, but their actual capabilities because they wouldn't have the money to invest.

Anyway, so the brilliant example of this is in 2008, Apple creates what's sort of known by journalists and such as the unibody MacBook. Unibody just refers to it's not sort of like different parts of metal that are welded together. It's one piece of metal.

that's extruded in such a way that then the keyboard can be placed inside and such. And so it's a totally different way of making notebooks. And it's done with a CNC machine that costs upwards of a million dollars each. And Apple buys about 10,000 of them.

to do this at scale so cncs have been around forever but you prototype things with them because they're so expensive apple has the money and the wherewithal and the imagination quite frankly to purchase 10 000 a year for multiple years and it puts them in other people's factories and then sort of tags them for Apple use only and begins producing laptops in a totally novel way that eventually gets replicated by everybody. So now loads of factories in China can do that.

But my point is they're bringing that capability. They're bringing that genius to China. And so you think of who these MD people are, it's America's top engineers. I mean, if you're Apple, you hire whoever the hell you want coming out of Caltech.

hiring them from tesla whatever you want to do and then you're sending them on a plane to china so i can't tell you how many people i would say well when was your first trip to china it was like oh the day i got the job at apple like i showed up and they said here's your flight Right. So the job of these people was to go to China and train, train, train, audit, supervise, purchase machinery for et cetera.

So they take unprecedented control of the supply networks in China. So it's not just the machines they're buying. It's not just the investment. It's also the training. China and this is according this number blew my mind Apple has trained 20 million workers in China since 2008. And this is your Berlin Wall line, which I want you to repeat because I think it's incredible. This transfer of knowledge constitutes a geopolitical event like that of the fall of the Berlin Wall.

But it's an event. Except, of course, when the Berlin Wall fell, it was the end of communism. Draw it out for us a little bit more. What have the implications been? This is kind of the other reason I go back towards the Marshall Plan. So people probably remember something of the Marshall Plan from their high school textbooks and stuff, right?

It was essentially like Europe's in crisis after World War II. It's impoverished and they worry that the Soviet Union is sort of going to expand westward, you know, if not through a military, then ideologically, right, young people are going to be attracted to communism. So a Marshall Plan, you know, aside from the dollars and investment, it's an anti-communism gesture, right?

The Cook Plan, and I'm trying not to be too biting here, but I think it's actually pretty clear, the Cook Plan was about sort of ingratiating Apple with communist leadership. So in a certain sense, it's the dollars of the Marshall Plan with the politics inverted. It actually helped to establish... the Communist Party rather than ward off that threat. That is a real, I mean, that is a pretty astonishing, that's how I see it. It took me months to...

grapple with the implications of what I was being told. I want you to spell out a little bit more politically what that means. What does it mean for American CEOs?

to have reified, solidified, strengthened, bolstered actively in the Chinese Communist Party? And do you think that Tim Cook has any... self-understanding or self-awareness that that's what he helped usher in so i've spoken to people at apple who still don't see this as a problem so i'm going to put him in that category i've never interviewed him but that would be my And I say that because the senior people who don't see this as a problem and in a sense don't understand why I'm questioning.

they say we don't have a problem with China. China would never cut Apple out of the equation because we are training them so much that that's created like safety for us. And I mean, to be fair, you could give a sympathetic view and you say, look, what China has done the last 25, 30 years has taken hundreds of millions of people out of poverty. Totally. And that's a net good. And if you're thinking in terms of the people...

That is a net good. And so when I'm talking to engineers who train loads of people, they would have Chinese friends and they would feel delighted that they were improving these people's lives. The problem, of course, is that China didn't become some great ally. It became a belligerent foe who wants to reincorporate Taiwan and set up concentration camps for Uyghurs. But there's a level of delusion involved in imagining that China could never...

Cut Apple out. How can you believe that in an era after the disappearance of Jack Ma? I mean, we could point to dozens and dozens and dozens of examples. How is that even possible? Yeah, so this is where a few of the conversations kind of went cold, right? And so... When you said things like that. When I would ask about... Honestly, sometimes, and I think this is even reflective of some of the quotes I use, You can tell the person's thinking about it for the first time.

Right. So like another one of my favorite quotes is when someone is part of his quote, he says, you know, we were just there. Building the most immaculate thing and then the second half of his quote is something like I guess we were unwittingly tooling them up giving them experiential know-how And what I'm pinpointing there is the I guess. He seems to be thinking on the spot, huh, in a reflective way. Yeah, I guess we did do that.

and i'm not trying to condemn this person But I do think that there was this engineering mindset. where you weren't pontificating matters of state. Apple makes you work really, really hard. I mean, so much so that one of my favorite anecdotes of the book is that in the first five years of Steve Jobs' comeback, there are so many marriages that are ending. that Apple has to institute what engineers call the DAP, the Divorce Avoidance Program.

Okay, and this is a series of days off, an understanding that Barry's not going to be in today because our marriage is on the line. And then that works for a time, except that we need Barry, right? And so we can't just have Barry off because our marriage is on the line. So let's give Nelly a $10,000 bonus every time Barry is sent to China.

I mean, that's the degree of, you know, like the narrative we have is that the Chinese work really hard, and that's an important narrative. Apple works really freaking hard too, right? And those engineers were really struggling with their marriages because they were going back and forth all the time. and then you know i have examples of like you know someone over at christmas dinner just coming back i mean just like literally falls asleep into a shepherd's pie

at the table because he's just so exhausted from all the work he's been doing in China. So what I'm trying to say is if you think about how hard those people are working, they're not sitting around, you know, learning Mandarin, let alone reading books about China and thinking politically. They're thinking I need to get the job done and I work for a company that is excellent and ruthless and I'm proud to work.

building products that Americans and people all over the world value so much. That's what they're thinking. Yeah, exactly. There's all kinds of good things that are going on, right? And just think of the scale of Apple. I love Apple products. Yeah, I mean, look, the whole book, A, was written on a MacBook.

Of course it was. V was written in the Notes app. It might be the first book ever written in the Notes app. It's such an underrated app. Partly because it's end-to-end encrypted, by the way. I was really worried about China hacking me, certainly.

And I really trust Apple in terms of privacy and stuff, but I'm worried about Apple hacking me as well. I don't know. I took some pretty good precautions. Really? I mean, you know, it's in a pseudonymous iCloud account. So my hope is that even if someone's trying to hack me, they don't know where to look.

One of the big stories politically right now at the moment is the way that I don't want to be careful with my language here, but I'll just I'll mimic the language that's being used in public discourse that, you know, our elites are the billionaire class. the people that are only concerned about their, you know, private jet lifestyle have essentially hollowed out the American middle and working class, hollowed out.

previous manufacturing towns like my hometown of Pittsburgh and not only have they done that to Americans they've also inadvertently or intentionally depending on who you ask bolstered the economy and the know-how of an authoritarian regime. I want you to contend with the first part of that, that the brain drain to China, or let's just say the manufacturing drain to China, hollowed out.

the American working class because you made the argument earlier in this conversation that that's actually maybe a politically convenient thing to say, but it's not true because you're saying Apple was already late to the game. This was going to happen anyway. Well, it depends if you're blaming the whole electronics industry or Apple. I don't think you can blame Apple. You can blame the electronics industry. Talk about both. But I would say...

It was done in good faith and a lot of good came out of it. I think it's amazing that globalization helps Taiwan, help South Korea, help Japan. I mean, these are thriving democracies. It's only problematic when you're doing it with a country that's quite belligerent, obviously authoritarian, it's a totalitarian surveillance state, and it's so large.

that it's not just like a contributor to industries it has the potential and obviously the capacity to totally dominate them now where i'm less sympathetic is i don't think you can really say that there's some alternative universe where

America remains a giant manufacturing force. Like, could the iPhone have been made in Pittsburgh? Yeah, like, I just don't think, I think that's a fantasy. Okay. Certainly it's not going to happen now, but could it have happened back then? What people don't get is that's a quantity. Right. So a thousand parts per iPhone, a million iPhones are being shipped per day at peak season. So do the math. That's a billion parts.

that you're not only manufacturing a day but you're running the logistics for and you're doing it in a just-in-time manufacturing method. that's never going to happen in Pittsburgh. That's not a political point. That's just basic reality, right? You could point to physics or something. It's just never going to happen. Where I am bullish would be friend-shoring. so india and mexico in particular And again, I don't hold out Apple for being, or I don't call out Apple.

for what they did in the late 90s, early 2000s, but I do for the 2013. So when Xi Jinping attacks Apple within 36 hours of taking power, that should have been a wake-up call for Apple to realize, oh, Shit. Remind people what happened then, because most people won't remember. 2013, March 15th, there's something called Consumer Day. Happens every year.

goes back to 1991 and it's cctv sort of the cnn of china if you will and they call out various companies for not living up to like the socialist ethos And increasingly in the 2000s, it becomes Western companies. So in 2012, it's McDonald's that's called out for food violations. And in 2013, it's Apple. Apple has called out for warranty differences.

That sounds really small, right? The allegation is that Apple has a different warranty for the Chinese than the rest of the world, and therefore it's sort of exploiting and taking advantage and treating the Chinese in some inferior way. Apple just thinks our warranty policies are basically the same. And so they just issue this sort of like.

you know, correction of understanding this press release that basically says like, no, we don't like they're the same. And then just throws off this throwaway line. Like we offer an incomparable user experience. for three weeks they're under attack essentially i call it a digital blitzkrieg where regulators newspapers of all kinds

opinion writers are attacking Apple for this arrogant attitude and the people's daily. So think of like the New York Times of China in a front page editorial says to strike down apple's incomparable arrogance right so they're stealing incomparable from apple and they're sort of riffing on that This is all happening within 24 hours, 36 hours of Xi Jinping becoming president. So it's really interesting. It's like this new sheriff in town.

It could not be more clear that he sees Apple as this exploitative force. And what's the conversation inside Apple, at the highest levels of Apple, as this is happening? Is there any sense of like, uh-oh, we got to change course here, guys? At first, there's confusion, because again, they just think, well, our warranties are the same. So three weeks go by. And then Tim Cook issues an apology on Apple's China website in Mandarin.

According to one source, and I just put this in parentheses, Tim Cook also flies to China and is made to kowtow, according to someone. They say the Chinese don't let you, just write a letter. You have to go and bow in person. I think that's worth including, but I don't know that for a fact. It's a single source, so it's in parentheses. I just want to make that clear. Apple realizes that

their products could be blacklisted. I mean, Facebook is blacklisted. Google is blacklisted. This is not some idle threat. And Xi Jinping makes it really clear right through his various mechanisms. And the party leads everything. When I'm saying Xi, I mean, if Beijing's doing something, it's Xi Jinping. You can be pretty damn sure about that.

And so there's all sorts of like antitrust investigations, right? So there's this Reuters report where 30 companies are called in. There's going to be antitrust investigations of all of them. And the quote from the official is, if you put up a fight, we can double or triple your fines.

The example that I really like to cite is Qualcomm. Qualcomm's like a chips architect in California, right? It's worth hundreds of billions of dollars. It's instrumental behind 3G, 4G, and 5G technology. Every phone you've ever used has Qualcomm inside. And... China just wants a lower rate on all of the licensing fees that Qualcomm is given for every phone that's made.

And what are they supposed to do? I mean, China is basically demanding that Qualcomm launch joint ventures in the country. And after three years, Qualcomm eventually just pays them a billion dollars.

biggest fine in corporate history for China, and sets up a joint venture. And a joint venture is what Beijing always wants. Basically, a Western company comes in, and the order of business is half this corporation is going to be Chinese so that we learn everything, you know, we learn the ins and outs and then we'll replicate your operations and eventually probably.

Apple interestingly is able to get away with not doing joint ventures for a long time But this is the context for when Xi Jinping enters the conversation writer becomes president that Apple looks like an exploitative force because if you look at something like the Foxconn margins

Apple goes from 1% margins in the early 2000s to 25% by 2012. And Foxconn's collapsed by two-thirds or three-quarters. And so it's like, wait a minute, aren't you guys working in tandem to build the iPhone? Why is Foxconn being treated so poorly? And so the fascinating most thesis-driven narrative of the book is that Apple appoints eight people. They call themselves the Gang of Eight. These are the first senior people living in the country.

And they sort of oversee everything, procurement, operations, retail, third-party sales, Apple University. and they come up with a sort of new method or way of speaking with Beijing. They speak the local languages, sort of how I put it. So it's the first time you've got people running government affairs in China at a high level for Apple. And they realize we need to flip this narrative on its head. So that's why...

So sorry. So they need to flip this narrative on its head. And so they sort of acknowledge and Tim Cook goes to Zhang Nenghai in May 2016. This is like the White House of China. and issues this memorandum of understanding where they're going to invest $275 billion over five years. So it's just an insane level of spending.

And what they're telling them is it's true that we don't have joint ventures. Like it's true that Samsung has something like 35 joint ventures at the time and we have zero. But you don't understand. We are orchestrating events. across hundreds of factories and we are training your factories.

And your whole goal is indigenous innovation. There's this idea called Made in China 2025 of how Beijing is going to have companies move up the value chain and become self-sufficient in robotics and automation and everything. And Apple, this is obviously my language, not theirs, realizes, oh, we're actually the biggest supporter of Made in China 2025. So if we just speak their language and tell them, here's how much we invest.

then Beijing's going to understand and appreciate just what an impact Apple's having on the country. Essentially, since they've done that, they haven't had major problems in the country. They certainly haven't feared that the products are going to be blacklisted.

And it's because Beijing realizes what an asset it is to have Apple operating there because they're working on such a scale with such perfectionist tendencies that the technology transfer embedded or engendered in their processes, their operations are. hugely beneficial to China. You quote this tech industry analyst in the book. I think his name is Horace Deddyu. I hope I'm pronouncing that correctly. And he writes this.

It's hard to reconcile the fact that the world's greatest American company, the most capitalist thing in the world, survives on the basis of a country that has communists in his title. We sort of talked around it, but I want you to really spell out the national security risk that comes from this.

seemingly symbiotic relationship. So the jargon that gets used is dual use technology. In other words, if you're working with electronics and semiconductors and stuff, that can be used for sexy iPhones. It can also be used for drones and military weaponry. So if you have been training our biggest adversary with cutting edge electronics over the last 25 years, you're actually up arming their military means by the same token.

So the national security implication, I think, is massive. And so like right now, the business ties between Apple and China are unbreakable. I mean, there's no place else that they could go do this stuff. And yet politically, I don't know how we accept this at all. I mean, can we really have for the next 20 years, Apple hiring the best engineers out of the best universities and having them go teach the most cutting edge techniques on unimaginable scale to China?

I mean, that's what I had to grapple with for the two years of writing this book. I think that's insane. But that's the reality. It is the reality, and it's not a reality that's going to shift anytime soon. Supply chains move real slow. You could look at what Trump is doing, or at least, you know, let's put the tariffs to the side for a second.

Certainly the language of the past hundred or so days about decoupling and things that were not really being discussed under the Biden administration are all of a sudden. Taking sort of center stage that this is not forgetting Apple Apple is a piece of it, but this you know interconnected relationship with an authoritarian regime that is um threatening taiwan and doing all kinds of other things we don't have time to get into this is not a tenable situation we need to decouple from china

What do people mean when they say that? And given your research just on this one particular company, do you think that's actually something that's possible for us? so i'm not optimistic and i wish i was but if there was some simple answer to the like issues that i've raised my book wouldn't be compelling because they would just you would just say oh well they're moving to india so problem solved That's not really happening at all. People think that it's happening. It's not. We can get into it.

I mean, one thing that's worth knowing is China has been de-risking decoupling from the US. since at least 2012, 2013. You've probably heard of the Belt and Road Initiative. Of course. This is a massive effort to basically create greater links with a whole portion of the non-Western world. Africa mostly.

Yeah, well, Africa, but also, you know, Kazakhstan and a whole bunch of nations around there, like the former Silk Road and such. I mean, that is China's attempt to make sure that it is not so dependent on just exporting to Europe and just exporting to America. In other words... China's in a much better position in Trump 2.0 than Trump 1.0 because they've already been de-risking from the West for the last...

Have we been doing anything equivalent? I know that there's no Belt and Road Initiative in America, but have we been de-risking in any way? on the same scale at all. Obviously my expertise is more for Apple. So people have this sense that something like 25% of iPhones are now made in India, right? This is like...

Totally understandable why someone thinks this, but this is Apple orchestrating this conversation and there's no real substance behind it. It's just spin. And it's total spin. But just to set the stage for people. Those those people that are concerned very concerned about what it means to be so integrated with China with apple and everything else are looking for um you know hope in some other place right so these these

Goods that we are so reliant on. Oh, it's okay. They'll go to Mexico They're going to India and so on. So that's the context for that Yeah, and so to be clear like politically or what-have-you I would love if this were the reality, you know setting up a bifurcated supply chain with like a totally independent supply chain all the way down to raw materials and stuff, if that's sort of being done in India over the next 20, 30 years. because they're more of an ally. Like, I love that idea.

Here's why it's not happening. If there are a thousand steps in making the iPhone and the final step is now being done in India for a quarter of the world's iPhones, congratulations, you've avoided tariffs on China. Have you de-risked your supply chain at all? No. No. So if for some reason... Is that what's literally happening, that the final step is happening in India? Yeah, so it's called FATP, Final Assembly Test and PAC, and that's what's now happening in India.

Now, Apple does have a more of a long-term plan to do more of the depth and breadth of component manufacturing and raw material mining and everything outside of, sorry, beyond FATP in India. But people think that's happening now, and it really isn't. There needs to be a massive acceleration.

in that regard. So yeah, if you buy an iPhone next year in America, very good chance the box says made in India. But that phone will be no less dependent on the China-centric supply chain than every other phone you view. This is what you write about China versus India. You say, China's top-down ambitions were aided by docile, hardworking laborers systematically exploited by the state.

By contrast, India's government is fragmented and less powerful. The subtext there, of course, is that China is the only country I'll say culturally, but you could say governmentally equipped to manufacture products at this level. Yeah, I mean, the reason India is part of the conversation is that it's the only country in the world with a billion plus people.

and rates of labor that frankly compare to China in the early 2000s. So in a really superficial sense, you think, well, that sounds perfect. But the more you look at it sort of substantially, the more you realize this probably isn't going to. So for instance, going back to the floating population discussion and such,

Like, that's really sort of the secret sauce of why China's manufacturing sector works so well. That you have people, and the reason they're systematically exploited, by the way, goes back to the fact that, you know, they can't actually have permanent residents in these cities and such. So I'm not really applying the exploitation to Apple per se. It's trying to have a dual class citizen structure.

within the country. There is no equivalent of that migratory pattern within India. There is no equivalent of young women going to work in factories outside the city of their home, right? why is outside the scope of my book, but when there was a study of 80 countries looking at migratory patterns, India was 80th. So you don't have the same culture. The reason I mention women is because the tasks that are often being done to make iPhones require a little finger.

So the fact that it's young Chinese women with little fingers, that actually matters. Apple engineers will talk about this. Isn't the great white hope here not India or Mexico or Canada or wherever, but robotics and AI? Yeah, so... unfortunately this is harder than like this sounds like this would be the obvious answer yeah literally like tiny little task like but that's something you imagine a robot okay so for starters

Anything that can be automated in iPhone production is already automated, right? Like there's insane levels of automation across the Apple ecosystem. So they're doing loads of that. Among the problems are that It's easier to automate something like a car because you traditionally sort of design a car and then you're building it for like seven years, right? So like I have a RAV4 from 2019. The RAV4 is coming off the line today.

The iPhones are... Great car. Nellie loves that car. Yeah, it's a perfect car for non-car people. That's how Doug DeMuro puts it. But the iPhone, at least, I'm certainly under the Johnny Ive era. I mean, you know, you can be critical of Apple now, but they're trying to sort of redesign the phone every year. Every time they redesign it with different cameras and different modules inside.

the automation is sort of reset, right? So it's one thing to set up the automation to do one thing and then have it running for seven years. It's different with Apple because they really have like the preponderance of production in like the first six months of an iPhone going on sale, like September to March. and then they're redesigning it. And so you'd have to reset up all the automation and stuff.

So it's true that you could say, oh, but what about like artificial general intelligence? If that comes on board, can machines be sort of thinking more smartly to do this thing on their own? OK, let's just say that's the case and we can be really optimistic about that.

Even so, where are the raw minerals coming from? Who is refining all the copper, all the lithium, et cetera, that's needed? That's still all happening in China, right? So even if the minerals are coming from Africa, it's Chinese companies, and then they're refining it all in China. So like the steps needed, even if automation is indeed the future and that were some sort of guarantee and you didn't need the labor force that we talked about for the last 25 years.

It's still the case that China has enormous advantages. They have more robots than us. They have more automation than us. And the machines that they already have set up on the production lines are just like, like experts find it difficult to even understand the depth and like. superiority of Chinese manufacturing. So you're completely bearish on the idea of decoupling, especially when it comes to Apple products.

It's one of those things where I would love to be wrong. Like everything in my being is pushing me towards an optimistic thing. I'm this like happy golden retriever Canadian, right? Like I'm not a pessimistic person. But I've spoken to so many people, and it's just not going to work.

Well, then where is this going to go? Because you're making the argument that this is an untenable situation from a national security perspective. Let's put aside everything else. Where does this go? So one answer is just the status quo. So nothing changes.

And most people aren't aware of what I'm calling politically untenable, right? I mean, most people, whether it's senators or congressmen or whatever, They're not familiar with how Apple is having this nation-building-like influence on China, specifically in the thing Xi Jinping wants most, which is the electronic sector, right, that dominance.

So to some extent, I'm obviously hoping my book makes a splash and that people understand that. And so I guess I'm shooting myself in the foot in terms of what that policy implication is, because the more people that become aware of what I'm arguing, the less.

likely it is that we can maintain the status quo. But if status quo is the answer, It could work in the sense that, you know, American continues doing what it does best, software, artificial intelligence, and it outsources all the hardware to China. The problem with that is the Chinese have become so good at learning and absorbing everything Apple's taught them that the world's best phones today are not iPhones. Huawei makes better phones.

Huawei makes a phone that's a little bit thicker than an iPhone, but it unfolds twice. into a 10.2 inch tablet, equivalent of an iPad. and it has tremendously good cameras and stuff. Now it goes for $2,800. and critics have derided it and saying, well, this is a way too expensive phone. But can you imagine in 2014 hearing that there was a Chinese phone that wasn't just imitating the best iPhone features, but it was better and it was actually luxurious?

Right. And this is what's happening in the EV world as well, where it's not that, you know, the Chinese EVs are just undercutting like the Ford, you know, like the Chevrolet Bolt or something. They're undercutting Porsche. So the Chinese have really learned. everything they need to know and have become just better at this stuff. So even before Trump came on board, Biden slaps 100% tariffs on EVs.

And just to sort of revert this back to the original discussion, the slang term for an EV is an iPhone on wheels. And so think of all the training that I'm talking about that went into all the suppliers. well those suppliers took what they knew and they applied it to an ev right so apple's influence on how chinese build cars is also like difficult to understate here's the upshot of what i'm hearing you say Not only are you saying that

the possibility of manufacturing the most important phone in the world, let's leave the Huawei one to the side, is never gonna happen outside of China in our lifetimes. More than that, you're saying that the idea of decoupling is not really possible, even though the current relationship constitutes a national security threat. What I hear you saying is that, you haven't said it quite this way, but that China has the upper hand and that if you were to characterize

who is going to dominate or bet on who is going to dominate the 21st century, it's probably not America, but it's China. I think we've got way too much emphasis on when China's going to outmatch America in GDP. That's not what I'm talking about, though. I'm not talking about GDP. I'm saying who has the upper hand? Because throughout this conversation, if you turn back time to 2001 or whatever, we did. But now I think what I'm hearing you say at least is that China does.

We are dependent on China. And not only that, the cost of our dependence has been paying them. hundreds of billions of dollars to allow them to have the know-how to go and take it to all kinds of applications that we have no idea about. I mean, if China were for some reason to cut America off from exports for a month... I mean it would be absolute chaos in the street. Now they have reasons why they wouldn't do that. Their economy is dependent on manufacturing and exporting stuff to the West.

but it's a considerable risk that we don't have a plan B. if they were to exercise that. China has weaponized its supply chain to a certain degree, but they've never gone all out. But the idea that they could, I mean, that's when our dependency would be crazily exposed.

I want to make one correction. I didn't say iPhones could not be built outside of China sort of ever. I said they could never be built in the US, certainly not the quantity that we build them. I do think they could be done in India. I just don't think Apple is making the necessary investments to make that happen. Why not though?

Why aren't they doing it? Because they're already winning the PR battle, because most of our listeners think that 25% of iPhones are made in India, right? Not making the distinction between they're assembled there, but they're not really made there in any meaningful sense. So Apple is doing this great PR battle where they're not really moving to India, but people think that they are, which means legally they're avoiding tariffs.

In the popular imagination, they're de-risking from China, but they're okay with Beijing because Beijing is too smart. They know the processes. They know that they're not actually moving from China. Now, if Apple did what I said they should do, right, was really accelerate their production, the depth and breadth of manufacturing all the way down to raw materials in India, they would immediately face a problem with Beijing.

Beijing's not going to allow that. Beijing wants technology transfer to be a one-way gate. It enters China, it doesn't leave. And so if you're Beijing or you're a provincial official and you don't like the new press release that more phones are going to be made in India, maybe electricity goes out at a certain factory on a random Wednesday. And they don't have to say anything. Apple engineers would just be put in the position of,

Guys, do we think the factory went out of electricity because of that India press release? And they would be left wondering. And then they would question whether they should be moving to India. So China really has Apple over a barrel here. And if they make any big pronounced moves.

their risk would be exposed. I mean, it's difficult to overstate how vulnerable Apple is. Can you talk about the position of Tim Cook that Tim Cook is in right now and trying to please Trump and also trying to stay on the good side of Xi? analyze his position strategically a little bit because I think it's really fascinating.

It's interesting that you would assume, I think, that Xi Jinping represents the biggest risk to China and and certainly even if you were thinking of what I said the last hour that's probably where you would go Trump is a bigger threat Because Xi Jinping does want Apple to be creating in China. Trump doesn't. What does he want?

Well, Trump wants it all built in America, but, you know, I mean, I don't think you have to be all that ideological to say that Trump doesn't know much about supply chains. I mean, even his own brand and ties and stuff are made in China. Like, he gets that that's where you build stuff.

so he's been asking tim cook essentially for close to a decade now to be building in america and tim cook has been you know like astute in telling Trump what he wants to hear that we are going to build in America, but he's not following through and he's obfuscating various things.

So, for instance, but it's worked, right? So, like, I love that the free press has all sorts of political contributors and, like, you know, they can make me angry and stuff, but I really like the discussion. But Batya, right, thinks that Apple is investing $500 billion to reinvent American manufacturing. I'm like, sorry about you. It ain't happening. It's an Apple press release.

but you're drinking the Kool-Aid if you think that's what's happening. Just anyone listening, do the math, go find the Apple press release, and you tell me in a back-of-the-envelope way if you can even get to $50 billion based on the announcements, right? And Apple's saying $500 billion for four years.

If that's the case, why aren't I seeing Apple jobs here, there, and everywhere for like a dozen different plants? Like the press release literally says $500 billion and we're going to create 20,000 jobs. How bad would a government program have to be to spend $500 million to generate 20,000 jobs? It's ludicrous. Now, this is opinion. I don't know the fact here. My assumption, because the only way I can make the math work,

is that Apple is counting as investment in America buybacks and dividends. In other words, the thing that it already does And people just don't understand how big Apple is. Apple buys back their own shares, right? This is way of sort of like inflating their own stock price and making executives look good. They don't know what to do with their money. They've got so much money.

They're buying $100 billion of their own shares per year. That's equivalent to all buybacks from Wall Street's top six banks combined. So they're operating on a scale that nobody is operating on. I would advocate they have that to investors, tell them to suck it up, and they spend $50 a year on supply chain resiliency and actually do more in America, do more in India. But they're winning the PR battle right now because most people think they are spending $500 billion in the U.S.

But if you just scrutinize that, just think of Apple just as a thought experiment. Say, this isn't a credible company. I'm going to read this in a really scrutinized way. You'll understand that the press release is, you know, just... Ridiculously misleading. What if the president said to the American people hey guys I know we all love our iPhones. But they're going to cost $3,000 a pop now because it's too much of a national security threat to have them built in China.

What do you think the reaction would be? So I know where you're getting the figure, right? Because this analyst put out that if you built them in America, they cost $3,500. Do you think that's wrong? I think it's completely wrong. What do you think the real price is? Everyone quotes this line because I literally don't know of another analyst who's come up with a number. What do you think the real price is? I don't think there is a price. I don't think they can be built here.

Yeah, not in the quantities. Again, 230 million iPhones are built a year. i mean it's just an astonishing number like someone asked me at a talk the other day well toyota does a really good job um you know building cars in america what lessons can apple learn from toyota and it's like toyota makes 10 million cars a year. Apple across this product portfolio does about half a billion. There's nothing that Toyota has to teach Apple.

Apple is operating on a scale that few companies can even imagine let alone execute on a daily basis You've talked earlier in this conversation and you write in the book about how Apple sort of slept walked into this reality. If Tim Cook were sitting here and you said to him, And I do hope you get to interview him at some point.

Never going to happen. Why not? Could. I don't think he would sit down with me. There's no chance. It could. Life's long. You have no idea. Can I tell you one fun fact? While I was doing this research, I was delighted that everyone was writing about AI and not touching the China hardware story whatsoever. But there were three major interviews of Tim Cook in the last year, Vanity Fair, Wired.

and the Wall Street Journal. China doesn't come up in any of those discussions. How is that possible? Because we're not asking the right questions of Apple. Everyone's sort of like, you know, sort of lured in by the idea of their sexy products. And like the journalist's idea of a scoop about Apple is like finding out if the new product has curved corners or something, right? We're totally ignoring the most existential, most important thing about the company's future.

If someone were to succeed Tim Cook tomorrow, by far the most important thing for that person is de-risking from China and having some sort of resilience in the supply chain. far more so than what the next iPhone is going to look like or whether the Vision Pro is a success. I don't know if he drinks or not, but let's assume you got him alone. You're at a bar. He's really being honest with you. Do you think if you asked him the question, hey, Tim, if you could turn back time,

and do it differently, what would you do? I have a good answer for this because a former senior vice president, I could probably name them, but I haven't cleared this by him, so I won't. But he said, even if we knew what China was going to become in 2006, 2007, what would you have us do it was still the case that china was the only place that could pull this stuff off i mean because even if you're optimistic i mean what if the answer is sorry to interrupt patrick but like we're gonna grow slower

Like, I mean, seriously, like, well, sure. Yeah. I think it would be a lot slower, right? Or just the quality wouldn't be there. Because, you know, Nokia phones were being built in the tens of millions and the hundreds of millions. But they were just sort of like,

shitty little plastic phones that were literally glued together. They just weren't on the same scale. Because I'm emphasizing quantity, but of course the quality of Apple products is unparalleled. So you're saying the people that you spoke to said we would do it all again? They're saying there's no alternative. That's another way of saying we'll do it all again. Well, yeah. So, okay, so I have spoken to people with an apple, right, who I've said to them,

This is, I'm quoting like a current employee. And I said, what percentage of products will be built in India by 2030? And I nearly fell out of my seat because the person said 60%. And I said, more than in China? Anyone? Absolutely. And I think this person is really wrong, but a bunch of other people with an apple, when I said that to them, they agreed. They said that's plausible.

I think there's hubris at Apple. I think they look back at the last 25 years and they say, look at what we did, pat themselves on the back and say, of course we could do that in India. There's not an understanding that China was a once in a century partner. They would build eight-lane highways to and from factory cities. They would create these bonded zones where there's all sorts of tax exemptions.

they would have this workforce that we've talked about that was just unparalleled in terms of their diligence, their hard-workingness, the hours that they would put in. I mean, the Chinese government... cares about manufacturing like nothing else and they would just buy the equipment give away the land for free etc like india is just not going to do that i don't care how powerful apple is it can't change culture and it can't change

the indian government and how they work i mean it's a fragmented country with god knows how many provinces and overlapping interests and competition and stuff beijing has more of like uh we say it's law And so Apple was able to just exploit that in insane ways.

iPhone production can be totally done in a different way than maybe there's a way you can do it someplace else on that scale. But if it's the same playbook of the last 25 years, I don't see how anyone's going to compete with China. How do you think history will view Apple in this period?

Like 100 years from now, if someone summarized this whole story in a few lines, what will those lines be? Yeah, I mean, if I have a goal, it's to totally upend your perception of Apple. I apply this question really to Tim Cook, so the conclusion is called Unwritten Legacy. And I'm taking on the idea that Tim Cook is sort of a demigod of capitalism who deserves to be exalted. And I'm saying it in a sort of tenuous way. I don't know where my own view of him is. It's not a solid position.

But my comparison is out of Jack Welch. Jack Welch was named manager of the century. Okay, hard to compete with that title in 2000. But by the time he passed away five years ago or so, his reputation had really changed. And it really changed because he led GE for 20 years before he retired in 2001. You know, shareholder returns were something like 20% a year. but you know by the time 2020 came around the book about him was called the man who broke capitalism

Because the more you replicated his strategy, the more you were outsourcing jobs. He once said he wanted production to be on a barge that would float around the world to wherever it was most convenient for tax purposes and stuff. The more that got replicated, the more it became understood that, like, this is great for shareholders, but it's kind of coming at the expense of wider societal interest. And so GE really falls apart.

like within days of him RETIRING LITERALLY HE RETIRES AND FOUR DAYS LATER IS SEPTEMBER 11 and GE was involved in insurance of both Twin Towers. And so they begin really struggling, and it begins to be clear as the economy enters a tailspin that there are so-called synergies between these very disparate businesses where actually like a liability, and then the 2008 financial crisis comes away, and they'd use their AAA rating to basically like... Um,

you know, rubber stamp a bunch of investments and sort of lend it out in a way that came back to bite them. So they were really heavily in the subprime mortgage crisis as, you know, using their balance sheet in ways that had nothing to do with like industrial, its industrial history. So anyway, my comparison is Could Tim Cook's reputation suffer something like this? Of course it could.

I mean, if China invaded Taiwan tomorrow, it would be the equivalent of a meteor strike on Apple. I mean, Apple would not only have no production coming out of China, all of its CPU chips are made in Taiwan, a tiny little island. I quote someone saying that the borderline malpractice. I'd be nervous as shit if I was on their board was the quote.

So it just doesn't take much of an imagination to think about how this could go wrong. I quote someone saying, Apple's relationship with China could blow up any day. So I don't know that it will blow up, but if it does, I don't think you can say it wasn't foreseen. It's been a risk for the last 20 years. I can't believe we're not writing about it more often. What's the thing that keeps you up at night lately? Well, the reception to the book. How Apple might respond.

Yeah, I mean, those two things, how China might respond. What's the most important book you've read in the past? Five or so years. The Wealth and Poverty of Nations by David Landis, late Harvard economist. It's basically on the Industrial Revolution. And he really made me understand just what a singular event that is. And he's really trying to answer why did it happen when it did? Why did it happen in Britain? How long did it take for the lessons to permutate everywhere else?

And I think in its own way, it's really a story about technological transfer. And so it really underpins my... understanding of what China has been able to achieve the last 20 years. So it's not from that book, but I take a quote from David Landis as my opening. And tell us what that quote is. Well, it's making an argument that it was know-how in manufacturing that led to Britain being the empire that it was.

Given that America is has declined as a manufacturing Nation and given what you said earlier in this conversation about manufacturing being sort of the key to nationhood. What does that mean about America's status as a nation? So I think it's okay if we have an integrationist approach. So like my master's thesis was called Allies and Ideals, and it was about American military. And it was saying that we should really leverage ideals that are looked up to around the world and our allies.

I think in a manufacturing sense, that would be fine. I'm very pro-friend-shoring. Do you think that Donald Trump should read that paper of yours? He'd be like the sixth person to read it. Do you get the impression that he reads a lot of papers? No, I just... The title seems like sort of the opposite of American foreign policy at the moment. Oh, it very much is. I mean...

Obviously, I understand that if a manufacturing facility closes in Ohio and goes to Mexico, a lot of people are upset. It is way better if that factory goes to Mexico than if it goes to China. If it goes to Mexico, there's intermediary trade between the countries. If it goes to China, it's lost. So it really matters to me that American manufacturers can do sort of more of the high end stuff, but like leverage NAFTA. I'm very pro-NAFTA.

Why are so many people embracing protectionism? I think to some degree, we're just totally taking for granted what we have as normal and not understanding how fragile civilization is and how abnormal our daily existence is here. Free trade, good. Oh yeah. Capitalism? I'm a capitalist, yeah.

There's no alternative, right? Well, China's showing that there is. Well, I would call that a version of capitalism. You want to say more? It's state-sponsored capitalism. I mean, they're better at capitalism. Patrick McGee, thank you so much for coming on Honestly. My pleasure. Thanks for listening. If you like this conversation, if it made you think differently or if it exposed you to a topic that you really didn't know much about,

All that's the point. Share this episode with your friends and family and use it to have an honest conversation of your own. Last but not least, if you want to support honestly and all of the work that we do, there's only one way to do that. It's by going to the Free Press's website at thefp.com and becoming a paid subscriber today. If you were one, you would have read Patrick McGee a few weeks ago on the iPhone story, and we hope to have him in our pages in the future. We'll see you next time.