Patrick McGee, an award-winning journalist who spent years covering Apple for the Financial Times, joins Scott to discuss his new book, Apple in China: The Capture of the World's Greatest Company. They get into Apple’s entanglement with China, the geopolitical risks tied to its supply chain, and whether a post-China future is possible for the company. Follow Patrick, @PatrickMcGee_. Scott starts the episode with thoughts on what makes someone a compelling communicator and storyteller. Algebra of Happiness: you're not your kid's friend. Help us plan for the future of The Prof G Pod by filling out a brief survey: voxmedia.com/survey. Learn more about your ad choices. Visit podcastchoices.com/adchoices
Chapter 1: What is the main topic of this episode?
Hey everyone, it's Neil I. Patel, Editor-in-Chief at The Verge and host of Decoder, my show about big ideas and other problems. We have a special exclusive episode for you that we're really excited about. It's an interview with Google CEO Sundar Pichai. I sat down with Sundar during the Google I.O.
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This is Peter Kafka, the host of Channels, the show about what happens when media and tech collide. And this week, I'm talking to Katie Drummond, who runs Wired. She's found a way to breathe new life into that publication by covering news.
We started covering Doge, like several stories a day, every single day. And after like a week, I sort of looked around and was like, where is everyone else?
That's this week on Channels, wherever you listen to your favorite podcast.
Episode 350. 350 is the area covering the Central Valley region of California. In 1950, the first TV remote was sold. Sad news, the inventor of the TV remote just passed away. He's being buried between two couch cushions. Okay, too much of a dad joke. What's the difference between a remote and the G-spot? A man will search for a remote.
Goal! Goal! Goal!
Welcome to the 350th episode of the Prop G Pod. What's happening? I am home in London. What have I been up to? So, Scott, what have you been up to? I went to Portugal, came back, went to my son's, he has this thing called Speech Day, and then back here, Memorial Day. You know, I've done a lot. I've been incredibly unproductive. I'm finishing up my book, Notes on Being a Man.
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Chapter 2: How did Apple contribute to China's growth?
But the reality is that Apple is doing 90% of their production in China. So when they say, we're investing this much, we're training this number of people, these are accurate figures, right? When Apple is conducting the same lobbying effort with Washington, the numbers are pretty fanciful.
So, I mean, if your listeners don't really agree with me or think it's a number that's too high when I say they're investing $55 billion a year, just remember that in February, Apple said that it's going to put in $500 billion investment and spend into America over the next four years. So just sort of suspend your disbelief here for a second.
I'm saying they're investing this crazy amount in a country where there's 90% of their production. And Apple's own figure that they're trying to convince everybody of is even higher in a country where 0% of their production takes place. So something is amiss here. And it's not me being bad with the figures.
It's that Apple is making a lobbying effort that's based on sleight of hand and sort of magician trick misleading information. So what I'm saying there is that Cook's relationship with the Trump administration is based on a lack of substance and a sort of political window dressing because they know what a threat Donald Trump is. I mean... Xi Jinping is not as big a threat as Donald Trump is.
And you could just sort of see that in a commonsensical way, which is that, broadly speaking, Xi Jinping and Tim Cook have their interests aligned. If they can both have Apple producing in China, that works wonders for both of them. That does not work wonders for Donald Trump. He does not want production to be in China.
And so the push to make iPhones in the U.S., which is fanciful for all reasons we can get into, is really what puts Tim Cook in a buy-in tier.
I think fanciful is the right word. The estimates I've seen is that a U.S.-produced iPhone would be $3,500. Is that accurate?
I would just push back on that number because that itself is a fanciful figure. I mean, the problem isn't that they'd be more expensive. The problem is that they couldn't be built. We have no idea how much an iPhone would cost if it were built in America. It's more that we just completely lack the capability. The line I like to use is an iPhone has a thousand components in it.
being produced and uh you know like the logistics the production the just-in-time manufacturing um for those phones up to a million a day so that means a billion parts a day and good luck finding an american corporation that can do one of those components at a million a day let alone hundreds of factories that can do all of it we're just 15 20 years behind and that's
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Chapter 3: What is the significance of Apple's supply chain in China?
So in sum, at any price, it's just not feasible.
The thing that people don't get is just the volumes that are involved. So Tim Cook is under such political pressure that I could see some final assembly taking place in America just because it makes such a great press release, but it's never going to be in consequential numbers. It's certainly not going to be cost competitive.
And frankly, if you think of who would have to work in these factories, it's totally antithetical to the MAGA crowd. In other words, it's the people fleeing Honduras that would be right for these factories.
I mean, those are the sort of people that could work a 12-hour day and have the sort of desperation because you're trying to find the equivalent of, you know, what does America have in terms of labor support? that would be equivalent to people working 14-hour days in the hot fields in Western China that go find a life in Shenzhen instead. You know, it's not going to be American-born people.
It's going to be the people that are trying to get over the Trumpian wall, if you will, to get into the country. So there's a contradiction in terms, even if you really wanted to fulfill the scenario.
The message I got from your book that was eye-opening was not only the sheer scale of Apple training 25 million people and making what you described as Marshall Plan-like investments in China, but just how good Apple's presence has been in China, that it has planted...
acorns in terms of human capital and manufacturing prowess that has just infected and given rise to this manufacturing juggernaut or what I'll call advanced manufacturing. I think in the U.S. we have a tendency to think of Apple as a bunch of low-end manufacturing. Excuse me, China is the host to a bunch of low-end manufacturing.
The reality is their manufacturing on many levels is much more sophisticated than ours is. All a long-winded way of saying, or prelude, speaking purely as what's best for, or would have been best for America, the rail politic, if you could go back in time.
Would American interests have been best served if Apple, and no one can predict the future, but if Apple, if we could go back 30 years and Apple could make a similar investment in, say, Mexico, which doesn't have the low cost back then of China, but has much lower costs, but isn't seen as an adversary or competitor, would we do it over? Would we do it differently?
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Chapter 4: How does Tim Cook navigate relationships with Xi Jinping and Donald Trump?
okay, that's harsh, but there's still no place to build at the quality scale, et cetera, that we needed to build at. So short of just saying, don't make the iPhone in such numbers, this person just said there was really no alternative. I like the Mexico question.
So if we go back 30 years, I mean, one thing that people don't quite understand about NAFTA is it's quite successful between 1993, its signing in 2001. And in America, we have this parochial view and we talk about the China shock, right? And what's the China shock? It's the impact of China entering the WTO on American jobs and so forth. But the China shock is even bigger in Mexico, right?
Because Mexico is more of a competitor in terms of, you know, actually being a mass producer of things than China was, or sorry, than America was. So, you know, Mexico gets hit harder by this than America. But when you are building something in Mexico, right, politically, this is a taboo thing, right?
Politically, if you can, you know, shun a factory or shame a factory, rather, because they're going from Ohio to Mexico, it's a politically winning strategy. But if that factory goes to China instead of Mexico, it's actually far worse because the intermediary trade, think of something like the automotive industry, cross borders between Mexico and US, is quite substantial.
So when you have a product, quote unquote, made in Mexico, it's often 20 to 25% made with American products. support in terms of the intermediate goods, right? The content that's actually in that product. Once it's in China, there's basically no intermediary trade, right? It goes down from like 20 to 25% to 5%.
So I'm really a supporter of what we used to call NAFTA because when jobs go to Mexico, you're actually leveraging the sort of low wage competitiveness of an allied nation that's on our border. And then you would do so in such a way that there's still trade with something like the aerospace sector centered around San Diego for higher value add. When it goes to China, it all goes.
So I think there's a substantial difference there. And therefore, I'm a big advocate of friend shoring or near shoring. But reshoring isn't going to happen for a company the size of Apple.
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Chapter 5: What are the geopolitical implications of Apple's investments in China?
It's not really an astonishing statement. It's a banal statement, but it's an astonishing state of affairs that America's greatest company is really more in the hands of our greatest adversary than anyone else. But I really don't know what the counter argument would be. I mean, 90% of the production is in China.
But it strikes me that if we just start to game theory this out, the pivot point here or the fulcrum or the agent of chaos here is Trump. Apple's humming along. They have kind of a mutually beneficial ecosystem or relationship with Xi and China. Actually, something that, if I read your stuff correctly, has been enormously mutual beneficial. It's kind of the...
Probably the most productive, profitable form of capitalism in history is the one between Apple and autocracy. It's created the most profitable product in history that each brought unique skills to. IP design on the part of Apple and advanced manufacturing capability to scale we've never seen before in any other product.
I'm not even sure World War II could match some of the production capabilities that have been demonstrated by Apple in China. And Tim Cook, let me ask you this. I'm getting into geopolitics right now, but we're talking about what is oftentimes or has been the world's most valuable company.
Isn't Tim Cook's play here just to kiss his ass or pretend to kiss Trump's ass and wait him out and everything stays the same?
So certainly, I mean, that was Trump's, that was Cook's strategy in Trump 1.0, right? Trump sort of famously said that Cook had promised three big, beautiful plants in America. You know, it's been, what, eight years? Zero such plants have emerged. So he just ran out the clock on Trump's presidency. And I think that's what they're trying to do again.
Because, you know, if you're Cupertino, I think you realize to some extent that Trump is a press release sort of president, right? He likes the optics of things, right? He doesn't necessarily need to be patient and wait for the reality of it. So in February, you know, getting ahead of the tariffs, Tim Cook and Apple put out a statement saying they were investing $500 billion in America.
This is basically nonsense. I don't know how exactly it is nonsense, but my running theory is that what they are counting as $500 billion includes buybacks and dividends. So if you look at how big Apple is, they literally spend more than $100 billion of their own money each year on share buybacks. So you multiply that by four, you've already accounted for 80% of the investment.
Now, maybe they have to do some math to figure out what, 65, 70% of shareholders are in America, so it doesn't count for that whole figure. But there's way less than meets the eye than the idea of $500 billion being reinvested in America to reshore jobs here. If that were a figure that, was as clear as the White House has taken it to be, right?
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Chapter 6: How did Apple shape the modern Chinese manufacturing landscape?
I mean, supply chains do not move at the speed of weeks. I mean, this is a ludicrous demand. Obviously, I mean, I assume the Trump administration doesn't actually expect the factories to be built by then so much as there's a concept of a plan to use Trump's language by then. But the other thing is that Apple doesn't manufacture anything themselves.
So it's not only that you have to convince Tim Cook, it's that Tim Cook would have to convince Foxconn and probably hundreds of other suppliers if you genuinely wanted to build things here. And of course, none of them see the certainty of the Trump presidency lasting, of the tariffs on China lasting, or any number of things.
And they would know that we're not going to be able to fill our factories if they're placed in Pittsburgh, because that's nothing like Zhengzhou or Shenzhen or Suzhou. So... There's just so many complicated factors here that basically favor the status quo, I suppose you could say.
And I guess the timing of my book, which obviously not through anything I did, is sort of insane, is that I'm pointing out that not only are the business ties between Apple and China unbreakable, But the political ties are totally untenable.
I mean, your average American just should not be happy with the idea that we are still sending America's best engineers to hundreds of factories across the country to train them up on a host of electronics, which, as we've already spoke about, can go well beyond China's dominance in EVs and iPhones and a number of other things. So...
What are they supposed to do here that that's at all a good move? And, you know, if you'd like an analogy that I'm sort of stealing from Henry Kissinger, you know, he points out the Westerners play chess. And when you play chess, you do something like Trump did about Huawei, right?
He tried to go after Huawei, sort of take out China's biggest company, deprive them of 5G access, deprive them of Google services. And that company nearly collapsed, but unfortunately came back with a vengeance for the current administration. But China plays a game called Go. And in Go, there is no final move.
You instead encircle your enemy to such a degree that they're basically unable to make any meaningful moves. And that is where I see Tim Cook and Apple right now. They do not have any meaningful moves other than digest a 25% tariff and hope that Trump doesn't raise it even further.
You brought up something I hadn't considered, and that is China might get or is getting in the way of a transition of any production to India. And my understanding is China sees themselves as a very strong ally of Pakistan, India less so. I would imagine that China and India see themselves as the same type of competitive threat as the U.S. now perceives China as. I hadn't considered that.
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Chapter 7: What lessons can be learned from Apple's relationship with China?
So I'm fascinated with the notion, and it seems obvious in hindsight or in plain sight now, that this incredible upskilling of the Chinese manufacturing base under the behest of Apple's incredible investment in an unbelievable complex product that we taught them how to fish, so to speak,
I'm curious if and how you can make the connection between Apple or Apple's upskilling of the Chinese manufacturing base and what is, from what I understand, delivering on the promise of Tesla but isn't in fact Tesla, it's BYD. Is there a direct connection between this upskilling and BYD?
Yes, short answer. So when Tesla wants to expand manufacturing to Shanghai in particular, they propose, this is in the book by the way, we'll build a factory in 24 months. And the mayor of Shanghai says, essentially, make it 12. We'll do whatever we can to accelerate this shift.
This is all happening within 24 months of Tim Cook explaining to top leaders in China just how the Apple model works and why it is superior to the joint venture model. So Shanghai officials basically want Tesla to be the apple of the electric vehicle world. Sometimes when people push back about this, they'll say, that doesn't make sense. You didn't need Tesla for the EV market in China.
EVs go back to 2001 in China.
that's true they do not successfully uh you know by 2012 2013 there are something like 30 000 ev buses in shenzhen alone so one city has more ev buses than the rest of uh really the world i mean certainly there's not anything like that in north america or europe at the time but even by 2019 the share of evs for the china market is less than five percent so evs might have a long history in in china they don't have a successful history
What really changes the game is that Tesla adopts the Apple model. I speak to someone that runs Capex for the Shanghai Gigafactory in the book who specifically says he hired Apple people to execute the same playbook. And they go to a whole bunch of factories to improve and localize the supply chain. BYD is one of those suppliers. CATL, Battery Giant, is one of those suppliers.
And so they train them how to do everything that's necessary to build a Tesla factory. And then those companies use the upskilling that they've received to improve the rest of the Chinese market. So in China, this is actually called the catfish effect. It's sort of misleading, but it's interesting enough that I'll quickly go through it for you.
So the idea, it's sort of based on a myth, is that a Norwegian fisherman realized that catfish... No, am I getting this right? Have you read the book? Now I'm wondering if I'm getting it wrong. Catfish and... No, sardines. Okay, so sardines, if they're kept alive when you catch them and bring them back to shore, are tastier and therefore more expensive if they're kept alive.
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