Hello, Odd Lots listeners.

Hello, Odd Lots listeners.

I'm Joe Wisenthal and I'm Tracy Alloway.

I'm Joe Wisenthal and I'm Tracy Alloway.

Tracy.

Tracy.

We're doing another live show and it's right here in New York City.

We're doing another live show and it's right here in New York City.

Yeah, this one should be our biggest yet, and we're going to have a bunch of Odd Lots favorites and do something maybe a little different to some of our previous live podcast recordings.

Yeah, this one should be our biggest yet, and we're going to have a bunch of Odd Lots favorites and do something maybe a little different to some of our previous live podcast recordings.

When the guests are revealed, the show is going to sell out right away, so you should really just go get your ticket right now. It's June twenty sixth. It's at Recket, NYC, and you can find a ticket link at Bloomberg dot com slash odd Lots or Bloomberg Events dot com slash odd Lots Live and.

When the guests are revealed, the show is going to sell out right away, so you should really just go get your ticket right now. It's June twenty sixth. It's at Recket, NYC, and you can find a ticket link at Bloomberg dot com slash odd Lots or Bloomberg Events dot com slash odd Lots Live and.

Why we hope to see you there.

Why we hope to see you there.

Bloomberg Audio Studios, Podcasts, Radio News.

Bloomberg Audio Studios, Podcasts, Radio News.

Hello and welcome to another episode of the Oudlots podcast.

Hello and welcome to another episode of the Oudlots podcast.

I'm Joe Wisenthal and I'm Tracy Alloway.

I'm Joe Wisenthal and I'm Tracy Alloway.

Tracy. I'm gonna confess something I've kind of hinted it.

Tracy. I'm gonna confess something I've kind of hinted it.

It's not that big of a confession, and.

It's not that big of a confession, and.

I've kind of hinted it already, which is that if Trump wants to impose a bunch of terrorists on a bunch of cheap, random plastic goods from China.

I've kind of hinted it already, which is that if Trump wants to impose a bunch of terrorists on a bunch of cheap, random plastic goods from China.

I'm fine with that. That's cool.

I'm fine with that. That's cool.

Fifty one hundred percent, one hundred and forty nine percent. I'll consume less. I'll be a little bit more of a monk or something like that.

Fifty one hundred percent, one hundred and forty nine percent. I'll consume less. I'll be a little bit more of a monk or something like that.

I'm fine with that.

I'm fine with that.

Okay, But isn't the argument not necessarily the cost, although there is a cost on individual consumers. But the argument is why do we want to focus on shifting plastic production and toy manufacturing to the US. That's the criticism, right, Like, why specifically focus on cheap goods in factories?

Okay, But isn't the argument not necessarily the cost, although there is a cost on individual consumers. But the argument is why do we want to focus on shifting plastic production and toy manufacturing to the US. That's the criticism, right, Like, why specifically focus on cheap goods in factories?

Yeah?

Yeah?

No, you might be right, Like, I don't think there's much value in safe, you know, moving a plastic stepstule factory or a stroller factory or whatever to the US.

No, you might be right, Like, I don't think there's much value in safe, you know, moving a plastic stepstule factory or a stroller factory or whatever to the US.

I don't.

I don't.

I don't really see the point. I want there to be affordable strollers obviously, just buy and large a lot of this stuff.

I don't really see the point. I want there to be affordable strollers obviously, just buy and large a lot of this stuff.

Yes, fine, this is not much of a confession, Okay, but.

Yes, fine, this is not much of a confession, Okay, but.

I will confess too that if the price of a new iPhone went up a lot, I would be pretty annoyed. I tend to notice these things. I tend to replace mine every two or three years or something like that. There are areas that we do import significantly from China that are not cheap child skis, cheap junk is. People like to fantasize that that's all China produces. There are areas that I would be very upset to pay a significantly higher price.

I will confess too that if the price of a new iPhone went up a lot, I would be pretty annoyed. I tend to notice these things. I tend to replace mine every two or three years or something like that. There are areas that we do import significantly from China that are not cheap child skis, cheap junk is. People like to fantasize that that's all China produces. There are areas that I would be very upset to pay a significantly higher price.

Well, getting back to the goal of tariffs and protectionist trade policies, I assume, you know, putting tariffs on iPhones would be about moving some of the production closer to home, and I think there there's an open question about whether we want that as well, because for most of our lifetimes, the stories we've been hearing about iPhones in China are all about how terrible the labor conditions are and how difficult it is to actually make these things. So right, I can see, you know, some strategic argument. Obviously, semiconductors are considered a very important strategic goal nowadays, but the actual manufacturing, you know, there is that China story out there.

Well, getting back to the goal of tariffs and protectionist trade policies, I assume, you know, putting tariffs on iPhones would be about moving some of the production closer to home, and I think there there's an open question about whether we want that as well, because for most of our lifetimes, the stories we've been hearing about iPhones in China are all about how terrible the labor conditions are and how difficult it is to actually make these things. So right, I can see, you know, some strategic argument. Obviously, semiconductors are considered a very important strategic goal nowadays, but the actual manufacturing, you know, there is that China story out there.

Anyway, I think the administration is very sensitive to people like me. One of the first things, even in the midst of the heat of the trade war, and I should note we're recording this May twenty ninth, it could be that the whole trade war is illegal. There was that court ruling made last night. We really don't know where things got to end up. They're clearly sensitive to the iPhone thing, and so there were some carve outs specifically related more or less related to that. I think during the first Trump administration, Apple got some reprieve. These are sensitive areas. Yes, we want to build up the capacity to expand technological production, high tech things, high value add things, and so forth, but we don't want the sticker shock. This explains, of course, some of the sort of multiple personalities administration, if you will.

Anyway, I think the administration is very sensitive to people like me. One of the first things, even in the midst of the heat of the trade war, and I should note we're recording this May twenty ninth, it could be that the whole trade war is illegal. There was that court ruling made last night. We really don't know where things got to end up. They're clearly sensitive to the iPhone thing, and so there were some carve outs specifically related more or less related to that. I think during the first Trump administration, Apple got some reprieve. These are sensitive areas. Yes, we want to build up the capacity to expand technological production, high tech things, high value add things, and so forth, but we don't want the sticker shock. This explains, of course, some of the sort of multiple personalities administration, if you will.

Well, there's also the added complexity of building up these very very advanced supply chains, right, and if you look at Apple and what they did in China, that was built over the course of many, many years, decades even, And the idea that the US is suddenly going to flip a switch, a terriff switch and move all that production elsewhere seems a little optimistic, right.

Well, there's also the added complexity of building up these very very advanced supply chains, right, and if you look at Apple and what they did in China, that was built over the course of many, many years, decades even, And the idea that the US is suddenly going to flip a switch, a terriff switch and move all that production elsewhere seems a little optimistic, right.

And then there might be flipping a switch, but not in the full direction. Maybe there are multiple dials on the switch. Sure, so then one possibility that you hear is okay, maybe move more to India. But I don't think Trump likes that. But maybe that would be a little bit better from the US perspective, in the sense that we're not contributing as much to Chinese economic development, and so, okay, it's not bringing jobs back, and Trump said moving to the US. From time to time you hear about maybe they could be built in Brazil or something. But all of these raised the question. There's two things. It's like, hey, is this realistic at all? If door is switch that you could pull is move to the US, move to India, that switch would have been moved. And then the other thing, too is what does it even mean to build the iPhone in India or the US, because there's final assembly, et cetera. But of course component parts within the iPhone themselves. Also, much of it is actually made in China. And you know, I'm sure there's thousands of tiny pieces of various things doing things, and there many of them are built in China. So even the idea of like we're going to move X production to X country is not a clear statement because it could just be the final packaging or whatever, and that's not really where the value add lies, which means we really have to more deeply understand how and what gets built in China and what it would mean to even move that. Well, we're even talked about when we're talking about moving these things, let's do it. Well, I'm very excited to say we do indeed have the perfect guest. We're going to be speaking with Patrick McGee. He's at the FT but he has a new book out came out May thirteenth called Apple in China Like the Capture of the World's Greatest Company, And it is a book about the history of Apple's deep relationship with the state of China, with the economy of China, the sort of co evolution of these entities. So much of the iPhone story we know is sort of inextricably connected with the rise of Chinese manufacturing. This is what Tim Cook is known for in the very beginning. So Patrick, thank you so much for coming on outlaws my pleasure.

And then there might be flipping a switch, but not in the full direction. Maybe there are multiple dials on the switch. Sure, so then one possibility that you hear is okay, maybe move more to India. But I don't think Trump likes that. But maybe that would be a little bit better from the US perspective, in the sense that we're not contributing as much to Chinese economic development, and so, okay, it's not bringing jobs back, and Trump said moving to the US. From time to time you hear about maybe they could be built in Brazil or something. But all of these raised the question. There's two things. It's like, hey, is this realistic at all? If door is switch that you could pull is move to the US, move to India, that switch would have been moved. And then the other thing, too is what does it even mean to build the iPhone in India or the US, because there's final assembly, et cetera. But of course component parts within the iPhone themselves. Also, much of it is actually made in China. And you know, I'm sure there's thousands of tiny pieces of various things doing things, and there many of them are built in China. So even the idea of like we're going to move X production to X country is not a clear statement because it could just be the final packaging or whatever, and that's not really where the value add lies, which means we really have to more deeply understand how and what gets built in China and what it would mean to even move that. Well, we're even talked about when we're talking about moving these things, let's do it. Well, I'm very excited to say we do indeed have the perfect guest. We're going to be speaking with Patrick McGee. He's at the FT but he has a new book out came out May thirteenth called Apple in China Like the Capture of the World's Greatest Company, And it is a book about the history of Apple's deep relationship with the state of China, with the economy of China, the sort of co evolution of these entities. So much of the iPhone story we know is sort of inextricably connected with the rise of Chinese manufacturing. This is what Tim Cook is known for in the very beginning. So Patrick, thank you so much for coming on outlaws my pleasure.

Hi Joe, Hi Tracy.

Hi Joe, Hi Tracy.

What does it mean if Apple says, oh, we're moving more production to India or we want to what does that term mean to you?

What does it mean if Apple says, oh, we're moving more production to India or we want to what does that term mean to you?

Ah? Well, cleverly, they don't say that. They say they're moving assembly because they they know, but the reader probably doesn't, the lister probably doesn't. There's a massive distinction between assembly and production. So I think Apple is sort of orchestrating this effort. Right, There's no press release that says anything from Apple, so you can't quote Apple. But insofar as the word got out, you know, my money's on Koupatino being behind this. So yeah, I mean put it this way, if there are a thousand steps in making an iPhone and the final one is now being done in India, that's enough to have a quote unquote substantive change to the product, and therefore the box can say made in India. Nothing about that phone is any less dependent on the China centric supply chain than any other phone you have ever purchased.

Ah? Well, cleverly, they don't say that. They say they're moving assembly because they they know, but the reader probably doesn't, the lister probably doesn't. There's a massive distinction between assembly and production. So I think Apple is sort of orchestrating this effort. Right, There's no press release that says anything from Apple, so you can't quote Apple. But insofar as the word got out, you know, my money's on Koupatino being behind this. So yeah, I mean put it this way, if there are a thousand steps in making an iPhone and the final one is now being done in India, that's enough to have a quote unquote substantive change to the product, and therefore the box can say made in India. Nothing about that phone is any less dependent on the China centric supply chain than any other phone you have ever purchased.

Okay, so on this note, maybe a good place to start is walk us through your typical iPhone, the one that Joe is buying every two or three years. What's its I guess birth process, Like, where do iPhones come from? And what is the actual supply chain that creates them.

Okay, so on this note, maybe a good place to start is walk us through your typical iPhone, the one that Joe is buying every two or three years. What's its I guess birth process, Like, where do iPhones come from? And what is the actual supply chain that creates them.

That's such a funny question. I'll tell you one funny answer, which is that I asked, you know, a very senior person at Apple how an iPhone is made, and he said, have you seen the I Love Lucy clip of them making chocolate have you ever seen that? Yeah, of course I actually hadn't. So Okay, so picture of its conveyor belt and the chocolate is coming so fast that eventually they just start heating them rather than packaging them up. Okay, So there's a method to the madness here. I mean, Apple is able to take Adam Smith's idea the division of labor and put it to the hilarious degree that out does Nathan Field with the comedian trying to do this with house cleaning two decades after the fact. So it is often the fact that on a conveor belt you have nine to eleven seconds to perform your task, you know, putting a module in the left hand corner or whatever, before the next iPhone comes over. So that's the final assembly process, and that's really what is taking place now in India ramping that up to avoid tariffs. But the actual production we're talking one thousand components and Apple works with the tightest engineering tolerances possible, only high quality materials. That you put this in car terms, they are making ten million porsches a year rather than ten million volkswagons, right, and the numbers are just staggering. Right. So if you're doing one thousand components a day, and you're shipping one million iPhones a day. That means at peak season, you were doing the manufacturing, the logistics, the just in time production of one billion parts per day. So find me an American factory that can do one of those parts, because China has factories that can do it for all one thousand. That's why nothing is moving here anytime soon. It's the combination of Apple's imperfection for defects quality and Apple's gar gantu and titanic like quantity.

That's such a funny question. I'll tell you one funny answer, which is that I asked, you know, a very senior person at Apple how an iPhone is made, and he said, have you seen the I Love Lucy clip of them making chocolate have you ever seen that? Yeah, of course I actually hadn't. So Okay, so picture of its conveyor belt and the chocolate is coming so fast that eventually they just start heating them rather than packaging them up. Okay, So there's a method to the madness here. I mean, Apple is able to take Adam Smith's idea the division of labor and put it to the hilarious degree that out does Nathan Field with the comedian trying to do this with house cleaning two decades after the fact. So it is often the fact that on a conveor belt you have nine to eleven seconds to perform your task, you know, putting a module in the left hand corner or whatever, before the next iPhone comes over. So that's the final assembly process, and that's really what is taking place now in India ramping that up to avoid tariffs. But the actual production we're talking one thousand components and Apple works with the tightest engineering tolerances possible, only high quality materials. That you put this in car terms, they are making ten million porsches a year rather than ten million volkswagons, right, and the numbers are just staggering. Right. So if you're doing one thousand components a day, and you're shipping one million iPhones a day. That means at peak season, you were doing the manufacturing, the logistics, the just in time production of one billion parts per day. So find me an American factory that can do one of those parts, because China has factories that can do it for all one thousand. That's why nothing is moving here anytime soon. It's the combination of Apple's imperfection for defects quality and Apple's gar gantu and titanic like quantity.

There is producttion of Apple products and I believe iPhones in India or sorry, assembly of Apple products in India. What do we know about the efficiency or the relative efficiency because obviously the company has been thinking about these risks for years and years and years, and I'm sure would love to not be this tightly linked to one country, which we know, for all the reasons we don't need to get into is risky. What do we know about the efficiency of its assembly in India?

There is producttion of Apple products and I believe iPhones in India or sorry, assembly of Apple products in India. What do we know about the efficiency or the relative efficiency because obviously the company has been thinking about these risks for years and years and years, and I'm sure would love to not be this tightly linked to one country, which we know, for all the reasons we don't need to get into is risky. What do we know about the efficiency of its assembly in India?

Let me just give you sort of objective numbers and then we'll go from there. So the first iPhones made in India were actually in twenty seventeen, OK, and by twenty twenty three, India was assembling about twenty five million iPhones. Go back a decade. The first iPhones were made in China in two thousand and seven, and by two thousand and fifteen you had two hundred and thirty million iPhones being built. So roughly speaking, the quote unquote diversification in India is happening at one tenth the pace of the original creation and scale of the iPhone, and even that vastly over the speed of development in India because, of course, in the early years of the iPhone, I mean you're literally inventing things like multi touch glass, right, you were inventing and redesigning the iPhone every single year, whereas India is basically just having to do the final steps in the process, and it's still not happening very quickly. Now, really, what changes is that in Shanghai twenty twenty two, the city enters lockdown, and that's a city of more than twenty five million people. It really is the first time in Apple's two decade history in China where did the government provincial officials in this case, really had made a decision diametrically opposed to Apple's interests and that's when Plan b Let's really ramp up in India went into effect. But it's been almost three years since then, and even so you don't have a whole lot going on there. And yeah, I've talked to the engineers. They're called manufacturing design engineers. These are the people who sort of do the handholding the engineering one zho one in different countries, and they've been ramping up in India, and what they find is that the ecosystem isn't there, the industrial clusters aren't there. You don't have eight lane highways to and from the factories. You often sometimes don't even have stable Wi Fi in the taxi the cab on the way to the factory. Engineers are sometimes staying two hours away, which means four hours of their day is just going to and from the factory. And if they don't have a stable cellular connection along the way, it can be a little bit maddening. So many things you don't have. And the other thing you just don't have is the sort of Nietzschean will to power on the part of New Delhi to make manufacturing their thing. And you don't have what engineers call quote unquote China speed, which is just like this inexplicable, speedy development that would wow Apple engineers in the earliest years. So, just to give one example that's not in the book, there was this example where these engineers from Apple are in this factory that needs to be sort of retooled for the Apple line, and it's the size of a football field. It's enormous, and they estimate, okay, it's going to take two to three weeks to get this machine removed. They come back the next day it's all been moved, and it's totally blows their minds. All they've done is gone to sleep, head breakfast, and come back and everything is complete. And that which is happening in China all the time, and it just is not happening in India.

Let me just give you sort of objective numbers and then we'll go from there. So the first iPhones made in India were actually in twenty seventeen, OK, and by twenty twenty three, India was assembling about twenty five million iPhones. Go back a decade. The first iPhones were made in China in two thousand and seven, and by two thousand and fifteen you had two hundred and thirty million iPhones being built. So roughly speaking, the quote unquote diversification in India is happening at one tenth the pace of the original creation and scale of the iPhone, and even that vastly over the speed of development in India because, of course, in the early years of the iPhone, I mean you're literally inventing things like multi touch glass, right, you were inventing and redesigning the iPhone every single year, whereas India is basically just having to do the final steps in the process, and it's still not happening very quickly. Now, really, what changes is that in Shanghai twenty twenty two, the city enters lockdown, and that's a city of more than twenty five million people. It really is the first time in Apple's two decade history in China where did the government provincial officials in this case, really had made a decision diametrically opposed to Apple's interests and that's when Plan b Let's really ramp up in India went into effect. But it's been almost three years since then, and even so you don't have a whole lot going on there. And yeah, I've talked to the engineers. They're called manufacturing design engineers. These are the people who sort of do the handholding the engineering one zho one in different countries, and they've been ramping up in India, and what they find is that the ecosystem isn't there, the industrial clusters aren't there. You don't have eight lane highways to and from the factories. You often sometimes don't even have stable Wi Fi in the taxi the cab on the way to the factory. Engineers are sometimes staying two hours away, which means four hours of their day is just going to and from the factory. And if they don't have a stable cellular connection along the way, it can be a little bit maddening. So many things you don't have. And the other thing you just don't have is the sort of Nietzschean will to power on the part of New Delhi to make manufacturing their thing. And you don't have what engineers call quote unquote China speed, which is just like this inexplicable, speedy development that would wow Apple engineers in the earliest years. So, just to give one example that's not in the book, there was this example where these engineers from Apple are in this factory that needs to be sort of retooled for the Apple line, and it's the size of a football field. It's enormous, and they estimate, okay, it's going to take two to three weeks to get this machine removed. They come back the next day it's all been moved, and it's totally blows their minds. All they've done is gone to sleep, head breakfast, and come back and everything is complete. And that which is happening in China all the time, and it just is not happening in India.

I like the idea of just one more lane bro will solve our domestic iPhone assembly production problems. That's pretty funny. Okay, So I want to back up a little bit, but can we talk a little more about Apple strategy in China specifically, So how much of that was a deliberate, conscious decision versus something that just kind of happened alongside I guess the wave of outsourcing and globalization that we saw in the late nineteen nineties early two thousands.

I like the idea of just one more lane bro will solve our domestic iPhone assembly production problems. That's pretty funny. Okay, So I want to back up a little bit, but can we talk a little more about Apple strategy in China specifically, So how much of that was a deliberate, conscious decision versus something that just kind of happened alongside I guess the wave of outsourcing and globalization that we saw in the late nineteen nineties early two thousands.

Yeah, great question. And what I like about your intro tracy is that I really do think the story of Apple and China over the last twenty years has really just been about the tedium of assembly. A journalists have won prizes for this kind of thing, right, and it's set into motion this cat and mouse pattern where a journalist goes into a factory and says, all these workers are working too hard, there's underage employees, et cetera. And then Apple is shame into making changes and it sort of plays the role of White Knight improving factory conditions across China's supply chain, and then journalist win's an award, and then two years later someone does the next thing in a different factory, and so on and so forth. But we're totally overlooking questions of Apple strategy, like what did they quote unquote discover in China that nobody else discovered? And so really the book is an attempt to do that. So the first thing I'd push back on is Tim Cook is very often called the architect of the China strategy, and it's not to discredit him to say that he is not the architect. Nobody is the architect. Basically, what happens is really the supply chain itself, with or without Apple was moving to China. And so the basic history of the eighties and nineties PC boom, like predating Windows ninety five and then coming after, is that the fight for computer dominance is exclusively based on things that are boring logistics, manufacturing, distribution, right, because everybody's using Windows, everybody's using Intel chips, and nobody's thinking about design. There is no equivalent of Johnny I've at Dell, at Compac, at any of these companies, and so it's really this mundane war, and it's driven by largely American and later Taiwanese contract manufacturers, and so they are the ones who, in competition with each other, start going to Asia to sort of oust each other right and gain market share, and eventually they're the ones who really find China. So when Apple is doing their own outsourcing moves, they're working in multiple countries before the armies of flexible, ubiquitous, low paid labor in China really win out. So my story has this five part chapter called Apple's Long March to China. It really tells you that the candy called iMac that I'm sure both of you and all of your listeners remember, like that was made out of Korea by LG who then expanded to Mexicali and Wales. Fox Con is brought on as a second supplier, and that's in China, but it's also in the Czech Republic, and it's also curt in California. But when you've got these operations in multiple countries, especially once China enters the World Trade Organization two thousand and one, all you have to do is look at an Excel sheet and realize that the efficiency, cost, the scale and anything China is winning. And so Apple begins to really consolidate everything into China. And around two thousand and three when the iPod Mini becomes the most ubiquitous product Apple's ever created, and then there's just no question that when the iPod nano is invented, that's where it's going to be built, and when the iPhone comes out, that's where it's going to be built. So it really is just like stumbling into greater and greater volumes and success in China. And I give all sorts of credit to China. I mean, people think it's an anti China book. If they haven't read it, it really isn't. There's only one place that Apple could have succeeded the way they did, and it's because China had tailor made policies. We're leading industrial clusters, we're leading industrial policy and hardworking people that would do this for twelve hours a day, six days a week.

Yeah, great question. And what I like about your intro tracy is that I really do think the story of Apple and China over the last twenty years has really just been about the tedium of assembly. A journalists have won prizes for this kind of thing, right, and it's set into motion this cat and mouse pattern where a journalist goes into a factory and says, all these workers are working too hard, there's underage employees, et cetera. And then Apple is shame into making changes and it sort of plays the role of White Knight improving factory conditions across China's supply chain, and then journalist win's an award, and then two years later someone does the next thing in a different factory, and so on and so forth. But we're totally overlooking questions of Apple strategy, like what did they quote unquote discover in China that nobody else discovered? And so really the book is an attempt to do that. So the first thing I'd push back on is Tim Cook is very often called the architect of the China strategy, and it's not to discredit him to say that he is not the architect. Nobody is the architect. Basically, what happens is really the supply chain itself, with or without Apple was moving to China. And so the basic history of the eighties and nineties PC boom, like predating Windows ninety five and then coming after, is that the fight for computer dominance is exclusively based on things that are boring logistics, manufacturing, distribution, right, because everybody's using Windows, everybody's using Intel chips, and nobody's thinking about design. There is no equivalent of Johnny I've at Dell, at Compac, at any of these companies, and so it's really this mundane war, and it's driven by largely American and later Taiwanese contract manufacturers, and so they are the ones who, in competition with each other, start going to Asia to sort of oust each other right and gain market share, and eventually they're the ones who really find China. So when Apple is doing their own outsourcing moves, they're working in multiple countries before the armies of flexible, ubiquitous, low paid labor in China really win out. So my story has this five part chapter called Apple's Long March to China. It really tells you that the candy called iMac that I'm sure both of you and all of your listeners remember, like that was made out of Korea by LG who then expanded to Mexicali and Wales. Fox Con is brought on as a second supplier, and that's in China, but it's also in the Czech Republic, and it's also curt in California. But when you've got these operations in multiple countries, especially once China enters the World Trade Organization two thousand and one, all you have to do is look at an Excel sheet and realize that the efficiency, cost, the scale and anything China is winning. And so Apple begins to really consolidate everything into China. And around two thousand and three when the iPod Mini becomes the most ubiquitous product Apple's ever created, and then there's just no question that when the iPod nano is invented, that's where it's going to be built, and when the iPhone comes out, that's where it's going to be built. So it really is just like stumbling into greater and greater volumes and success in China. And I give all sorts of credit to China. I mean, people think it's an anti China book. If they haven't read it, it really isn't. There's only one place that Apple could have succeeded the way they did, and it's because China had tailor made policies. We're leading industrial clusters, we're leading industrial policy and hardworking people that would do this for twelve hours a day, six days a week.

Is the book an anti Apple book? I mean you say it's not an anti China book. Apple who's created literally trillions of dollars in value for Americans. It's created thousands and thousands of amazing, high paid jobs that are much better than the jobs that are at the assembly or factories that exist in China. Is it an anti Apple book?

Is the book an anti Apple book? I mean you say it's not an anti China book. Apple who's created literally trillions of dollars in value for Americans. It's created thousands and thousands of amazing, high paid jobs that are much better than the jobs that are at the assembly or factories that exist in China. Is it an anti Apple book?

No. Anyone thinking it's an anti Apple book will be in for a rude awakening because you'll quickly realize that for starters, when I say I spoke to more than two hundred people, I'm only counting the people with Apple experience. Then I spoke to other people as well, in supply chain, academics, journalists, that kind of stuff. But it is told through the eyes of the people in the weeds on the grounds, you know, directing Apple's success. Right, So the first chapters in particular, I mean, the first part is called Saving Apple is really just a story of Apple's genius in pulling off these maneuvers and coming off the brink of bankruptcy. They are literally days away from missing payroll. In nineteen ninety six, I think I reveal for the first time they'd even hired a Chapter eleven lawyer. And then as the sort of hail Mary move, once they've got a bit more money after selling a factory in Colorado, they bring back Steve jobs. And really the first narrative is just like this raw raw, go Apple, Can they do it? And even in two thousand with the dot com bust, like they're close to bankruptcy again and Gateway literally tries to acquire them. So the story is one of sleepwalking into a geopolitical reality. Really, as China changes, I mean, I don't criticize anyone at Apple for moving to China in the early two thousands. That's what everybody was doing. I would even say there was an American consensus rather than some bipartisan effort, that going to China was good because you were going to inculcate the next great democracy, you know, and maybe in a hubristic or arrogant way. But like Americans would have said, that's what we did for Taiwan, that's what we did for Korea, Germany, et cetera. I mean after World War Two. So there was all sorts of reasons to move to China. The problematic decision was that once Xijinping comes into power, Apple is not an innocent bystander. As Xixhinping hardens his tone and becomes more belligerent, he attacks Apple within thirty six hours of taking the reins in March twenty thirteen, and that was the point at which Apple could have made a strategic decision to diversify its supply chain to India or something. Instead, they ramp up their rewards for shareholders in the form of buybacks and dividends, and they doubled down in China, appointing a team to basically understand Chinese culture, understand Chinese politics, and come up with a way of demonstrating to the country and it's efficial. Look, we're really really in this for China, as it were.

No. Anyone thinking it's an anti Apple book will be in for a rude awakening because you'll quickly realize that for starters, when I say I spoke to more than two hundred people, I'm only counting the people with Apple experience. Then I spoke to other people as well, in supply chain, academics, journalists, that kind of stuff. But it is told through the eyes of the people in the weeds on the grounds, you know, directing Apple's success. Right, So the first chapters in particular, I mean, the first part is called Saving Apple is really just a story of Apple's genius in pulling off these maneuvers and coming off the brink of bankruptcy. They are literally days away from missing payroll. In nineteen ninety six, I think I reveal for the first time they'd even hired a Chapter eleven lawyer. And then as the sort of hail Mary move, once they've got a bit more money after selling a factory in Colorado, they bring back Steve jobs. And really the first narrative is just like this raw raw, go Apple, Can they do it? And even in two thousand with the dot com bust, like they're close to bankruptcy again and Gateway literally tries to acquire them. So the story is one of sleepwalking into a geopolitical reality. Really, as China changes, I mean, I don't criticize anyone at Apple for moving to China in the early two thousands. That's what everybody was doing. I would even say there was an American consensus rather than some bipartisan effort, that going to China was good because you were going to inculcate the next great democracy, you know, and maybe in a hubristic or arrogant way. But like Americans would have said, that's what we did for Taiwan, that's what we did for Korea, Germany, et cetera. I mean after World War Two. So there was all sorts of reasons to move to China. The problematic decision was that once Xijinping comes into power, Apple is not an innocent bystander. As Xixhinping hardens his tone and becomes more belligerent, he attacks Apple within thirty six hours of taking the reins in March twenty thirteen, and that was the point at which Apple could have made a strategic decision to diversify its supply chain to India or something. Instead, they ramp up their rewards for shareholders in the form of buybacks and dividends, and they doubled down in China, appointing a team to basically understand Chinese culture, understand Chinese politics, and come up with a way of demonstrating to the country and it's efficial. Look, we're really really in this for China, as it were.

What exactly was Apple's pitch to Chinese leadership? And I guess how did it change over time? How much of it was about, Oh, we're going to create jobs that will pay more than agricultural wages, better standards of life, maybe relatively, versus the strategic value of building up China's tech sector and all this strategic semiconductor technology and things like that. How did it shift over time?

What exactly was Apple's pitch to Chinese leadership? And I guess how did it change over time? How much of it was about, Oh, we're going to create jobs that will pay more than agricultural wages, better standards of life, maybe relatively, versus the strategic value of building up China's tech sector and all this strategic semiconductor technology and things like that. How did it shift over time?

So it's a fascinating narrative, And really the first four parts of the book leading up to twenty thirteen are just foundation buildings, so you sort of understand the history of Apple and what sort of problems they're having. Essentially, what happens is when chies in paying at tax Apple, you can understand why he's upset with the company. It looks like an exploitative power because their margins. Apple margins have gone from something like one percent in two thousand and three to twenty five percent in twenty twelve. But at the same time, if you look like a company like Fox con foxhon in absolute dollars made more money than Apple for each of the first four years of the twenty first century. But as they get more involved with Apple, their margins collapse from double digits to about one or two percent. And so you can just do this with really any company working with Apple, and it looks like they're not in it for China, right, They're not doing anything for the country. And Apple it takes them two or three years, but they totally flip this narrative on its head. So out of fear that Beijing is going to force Apple to operate a bunch of joint ventures, right, these fifty to fifty companies where China owns the other half, and then they mimic the technology and eventually oust you. I mean, this is what happened in high speed rail for instance. Beijing has advocated joint ventures for decades, really going back to the nineteen eighties. So this is where a Western company is allowed to be in the Chinese market. But the quid pro quo is, look, if you want access to our operational efficiency, if you want access to more than a billion people, you have to operate in a joint venture where the Chinese half of the company is going to learn everything they can and then thrive on their own. Apple doesn't have any joint ventures, and so they look like this anti China model that's just exploiting the country. Is able to really flip this on its head and say, look, it might be the case that Samsung has three dozen joint ventures and we have zero. But you need to understand we work with hundreds of factories across the country. And the reason they're only getting paid one percent margin, two percent margin, the reason they're sometimes even losing money on their partnerships with Apple is that we are offering them the equivalent of Ivy League hardware engineering training. We are sending people over by the literal planeload to China America's best engineers, where they train, audit supervised, install hundreds of millions of dollars worth of machinery. They train the line, they supervise the line. And once those companies have these skills that Apple gives to them, they are basically able, at least after some time of exclusivity, they are able to supply somebody else. So who's just like Apple, but in China, Huawei, Apo, Vivo, Chaome and so those companies today have fifty five percent global market share of the smartphones. And the reason that they're so good is that Apple trained all of their suppliers. So that's the message Apple gives to Beijing, and essentially they've they sort of had a free ride ever since. It would be insane for Beijing to go after Apple in some direct way because Apple is the great teacher of China. They offer way too much and the numbers we can get into are staggering.

So it's a fascinating narrative, And really the first four parts of the book leading up to twenty thirteen are just foundation buildings, so you sort of understand the history of Apple and what sort of problems they're having. Essentially, what happens is when chies in paying at tax Apple, you can understand why he's upset with the company. It looks like an exploitative power because their margins. Apple margins have gone from something like one percent in two thousand and three to twenty five percent in twenty twelve. But at the same time, if you look like a company like Fox con foxhon in absolute dollars made more money than Apple for each of the first four years of the twenty first century. But as they get more involved with Apple, their margins collapse from double digits to about one or two percent. And so you can just do this with really any company working with Apple, and it looks like they're not in it for China, right, They're not doing anything for the country. And Apple it takes them two or three years, but they totally flip this narrative on its head. So out of fear that Beijing is going to force Apple to operate a bunch of joint ventures, right, these fifty to fifty companies where China owns the other half, and then they mimic the technology and eventually oust you. I mean, this is what happened in high speed rail for instance. Beijing has advocated joint ventures for decades, really going back to the nineteen eighties. So this is where a Western company is allowed to be in the Chinese market. But the quid pro quo is, look, if you want access to our operational efficiency, if you want access to more than a billion people, you have to operate in a joint venture where the Chinese half of the company is going to learn everything they can and then thrive on their own. Apple doesn't have any joint ventures, and so they look like this anti China model that's just exploiting the country. Is able to really flip this on its head and say, look, it might be the case that Samsung has three dozen joint ventures and we have zero. But you need to understand we work with hundreds of factories across the country. And the reason they're only getting paid one percent margin, two percent margin, the reason they're sometimes even losing money on their partnerships with Apple is that we are offering them the equivalent of Ivy League hardware engineering training. We are sending people over by the literal planeload to China America's best engineers, where they train, audit supervised, install hundreds of millions of dollars worth of machinery. They train the line, they supervise the line. And once those companies have these skills that Apple gives to them, they are basically able, at least after some time of exclusivity, they are able to supply somebody else. So who's just like Apple, but in China, Huawei, Apo, Vivo, Chaome and so those companies today have fifty five percent global market share of the smartphones. And the reason that they're so good is that Apple trained all of their suppliers. So that's the message Apple gives to Beijing, and essentially they've they sort of had a free ride ever since. It would be insane for Beijing to go after Apple in some direct way because Apple is the great teacher of China. They offer way too much and the numbers we can get into are staggering.

Tracy real quickly before we move on. So Apple has a three trillion dollar market cap. Do you want to take a stab at what the market cap of Hanahei, which is the company that owns Fox Hanhai Precision Industry. Do you want to get guess what its market cap is?

Tracy real quickly before we move on. So Apple has a three trillion dollar market cap. Do you want to take a stab at what the market cap of Hanahei, which is the company that owns Fox Hanhai Precision Industry. Do you want to get guess what its market cap is?

No, I absolutely do not. Just tell me so I don't want to embarrass myself.

No, I absolutely do not. Just tell me so I don't want to embarrass myself.

Seventy two billion, three trillion versus Now, granted they're not the only company that makes them, but yeah, these are not as these are nowhere near as profitable industries use this term. Apple is the great has been a great teacher, and I want to get into what people have learned from Apple development and then built competitive companies. But you mentioned those old and I hadn't thought about them in a long time, those old iMacs that were multicolor, that called a lot of attention. Some of them were really not trivial at all to build with the existing man manufacturing technology that existed in the world at the time. And I remember sometimes they would announce a new one, and they're like, but we're really sorry to tell you we're not going to be able to produce this one in the emerald green yet because we haven't perfected how to bend the plastic or whatever the material was, the glass of emerald green, whatever that color is. It creates an issue and all the people in the audience will go boo.

Seventy two billion, three trillion versus Now, granted they're not the only company that makes them, but yeah, these are not as these are nowhere near as profitable industries use this term. Apple is the great has been a great teacher, and I want to get into what people have learned from Apple development and then built competitive companies. But you mentioned those old and I hadn't thought about them in a long time, those old iMacs that were multicolor, that called a lot of attention. Some of them were really not trivial at all to build with the existing man manufacturing technology that existed in the world at the time. And I remember sometimes they would announce a new one, and they're like, but we're really sorry to tell you we're not going to be able to produce this one in the emerald green yet because we haven't perfected how to bend the plastic or whatever the material was, the glass of emerald green, whatever that color is. It creates an issue and all the people in the audience will go boo.

But then they'd get.

But then they'd get.

There like six months later. And then you mentioned the multi touch glass, which didn't originally exist at the time. How much is it co learning? You know, we have this divide of there the designers and coopertinos and the assemblers and the builders somewhere in Asia. But something also happens, And there's a theme repeatedly on the show where innovation happens at the shop floor, and the idea of cleanly drawing the line between the designers and the building is a fallacy. It must be the case that at least in some of these realms, whether we're talking about the glass, whether we're talking about the ability to bold plastic green plastic into a pretty iMac that innovation also happens in China, and the Apple benefits from that learning as well.

There like six months later. And then you mentioned the multi touch glass, which didn't originally exist at the time. How much is it co learning? You know, we have this divide of there the designers and coopertinos and the assemblers and the builders somewhere in Asia. But something also happens, And there's a theme repeatedly on the show where innovation happens at the shop floor, and the idea of cleanly drawing the line between the designers and the building is a fallacy. It must be the case that at least in some of these realms, whether we're talking about the glass, whether we're talking about the ability to bold plastic green plastic into a pretty iMac that innovation also happens in China, and the Apple benefits from that learning as well.

Yeah, I'm wondering if the right analogy would be something like a graduate student at Harvard writing a paper with their professor. Right, it is something along those lines, like the Apple engineers by the planeload are going over there, but they're absolutely co inventing something. Right. So I was told that like the ideal manufacturing design engineer right would look at what Johnny I had come up with and say, I have no idea how to build that, but I'm going to do my best to find out. Right, So they would have a certain skill set and with a whole team of people, of course, and they would go to the Chinese factories and they find the suppliers who might have some background in multi touch glass, let's say, right, or we're adding electrical circuits to the glass, and then they would train and co invent the next processes. So they're not just co inventing the parts, they're co inventing the processes that make the parts. Right, what Elon Must sometimes calls the machine that creates the machine. So I'm glad you brought this up, just because in no way am I saying like the Chinese offered them nothing or something like that, right, Like, it's not like to say that Carvard it's a great school. Isn't to say that like the students that go there don't deserve loads of credit. Of course they do. And the same way like Apple is a teacher of the Chinese and to be fair, like the founder of Huawei has called Apple the teacher. But that's not to say that they could have done this anywhere. In fact, if anything, I think Apple has a bit of hubris, believing that they can replicate their twenty five year investment into China and go do it in India. And it's like, guys do not understand like the degree to which China was a once in a century partner with all these tailor made policies, they would just build factories at the time that you and I would still be doing the environmental paperwork. I just don't think you see that in India, and you don't see that in America either. So China is not just like a blank slate with lots of people. They offer all kinds of things to Apple and Apple, and to be fair, they offer all kinds of things to anybody. But Apple understands the opportunity just better than anybody else.

Yeah, I'm wondering if the right analogy would be something like a graduate student at Harvard writing a paper with their professor. Right, it is something along those lines, like the Apple engineers by the planeload are going over there, but they're absolutely co inventing something. Right. So I was told that like the ideal manufacturing design engineer right would look at what Johnny I had come up with and say, I have no idea how to build that, but I'm going to do my best to find out. Right, So they would have a certain skill set and with a whole team of people, of course, and they would go to the Chinese factories and they find the suppliers who might have some background in multi touch glass, let's say, right, or we're adding electrical circuits to the glass, and then they would train and co invent the next processes. So they're not just co inventing the parts, they're co inventing the processes that make the parts. Right, what Elon Must sometimes calls the machine that creates the machine. So I'm glad you brought this up, just because in no way am I saying like the Chinese offered them nothing or something like that, right, Like, it's not like to say that Carvard it's a great school. Isn't to say that like the students that go there don't deserve loads of credit. Of course they do. And the same way like Apple is a teacher of the Chinese and to be fair, like the founder of Huawei has called Apple the teacher. But that's not to say that they could have done this anywhere. In fact, if anything, I think Apple has a bit of hubris, believing that they can replicate their twenty five year investment into China and go do it in India. And it's like, guys do not understand like the degree to which China was a once in a century partner with all these tailor made policies, they would just build factories at the time that you and I would still be doing the environmental paperwork. I just don't think you see that in India, and you don't see that in America either. So China is not just like a blank slate with lots of people. They offer all kinds of things to Apple and Apple, and to be fair, they offer all kinds of things to anybody. But Apple understands the opportunity just better than anybody else.

So you make the point in the book that there's I guess a tension between a company like Apple and they're very very sharp focus on shareholder returns and quarterly profits and continued growth and just throwing off loads and loads of cash. There's a tension with I guess nationalism and economic and strategic development. And so Apple's focus on growth has been to China's strategic and developmental benefit and maybe less or so to America's at least in terms of strategic things. And what's funny is right after this interview, we're actually going to speak to Avadao, who wrote a book on Huaii, and she makes the point. Yeah, she makes the point it really dovetails with your book, but.

So you make the point in the book that there's I guess a tension between a company like Apple and they're very very sharp focus on shareholder returns and quarterly profits and continued growth and just throwing off loads and loads of cash. There's a tension with I guess nationalism and economic and strategic development. And so Apple's focus on growth has been to China's strategic and developmental benefit and maybe less or so to America's at least in terms of strategic things. And what's funny is right after this interview, we're actually going to speak to Avadao, who wrote a book on Huaii, and she makes the point. Yeah, she makes the point it really dovetails with your book, but.

We didn't mean to schedule like that.

We didn't mean to schedule like that.

Yeah, yeah, But she makes the point that stock prices and balance sheets can't fully capture the societal value of a nation's technological competency. And this is something that maybe Huawei understands better than an Apple. Where do you see I guess the key differences in sort of corporate culture between a Huawei and an Apple.

Yeah, yeah, But she makes the point that stock prices and balance sheets can't fully capture the societal value of a nation's technological competency. And this is something that maybe Huawei understands better than an Apple. Where do you see I guess the key differences in sort of corporate culture between a Huawei and an Apple.

So I might be taking this in a slightly different direction than you're thinking. So if I need to re answer in a second, let me know, but the Chinese don't prioritize profits or margins the way that we do. They prioritize control of the industry because if the Chinese can take over something like electric vehicles, they in effect de industrialize all their rivals and really gain dominance. The place that you can see this most clearly is solar panels. Nobody in China is making thirty percent margins on solar panels, but more than ninety percent of solar panels are now made in China. This is a technology that America invented in the nineteen fifties and itself had eighty to ninety percent market share of in the eighties, but we cannot compete. That is basically what's happening with electric vehicles right now. Hence, even before Donald Trump became president, Joe Biden put one hundred percent tariffs on Chinese made evs, and I think it was just a few days ago that BYD slashed the prices of their evs in a bid for greater competitiveness. So look, I think China has a state sponsored form of capitalism. I'm emphasizing that it is a form of capitalism, but it's not a shareholder maximization form of capitalism. It's a command and control form of capitalism.

So I might be taking this in a slightly different direction than you're thinking. So if I need to re answer in a second, let me know, but the Chinese don't prioritize profits or margins the way that we do. They prioritize control of the industry because if the Chinese can take over something like electric vehicles, they in effect de industrialize all their rivals and really gain dominance. The place that you can see this most clearly is solar panels. Nobody in China is making thirty percent margins on solar panels, but more than ninety percent of solar panels are now made in China. This is a technology that America invented in the nineteen fifties and itself had eighty to ninety percent market share of in the eighties, but we cannot compete. That is basically what's happening with electric vehicles right now. Hence, even before Donald Trump became president, Joe Biden put one hundred percent tariffs on Chinese made evs, and I think it was just a few days ago that BYD slashed the prices of their evs in a bid for greater competitiveness. So look, I think China has a state sponsored form of capitalism. I'm emphasizing that it is a form of capitalism, but it's not a shareholder maximization form of capitalism. It's a command and control form of capitalism.

You mentioned, and I had never I had either forgotten about it, didn't realize that Shujinpin called out Apple very early, within thirty six hours of taking power in twenty thirteen. Can you talk a little bit about the sort of evolution of the CCP and Apple's relationship with it over time. There is obviously this perception then she specifically has taken on this more nationalist, ambitious edge versus his predecessors. Can you talk a little bit just more about that specific relationship with Apple and the CCP itself, beyond just the economic capacity on the ground.

You mentioned, and I had never I had either forgotten about it, didn't realize that Shujinpin called out Apple very early, within thirty six hours of taking power in twenty thirteen. Can you talk a little bit about the sort of evolution of the CCP and Apple's relationship with it over time. There is obviously this perception then she specifically has taken on this more nationalist, ambitious edge versus his predecessors. Can you talk a little bit just more about that specific relationship with Apple and the CCP itself, beyond just the economic capacity on the ground.

So Apple gets in a sense a misleading picture of what it's like to operate in China because when they really consolidate production, it's two thousand and three, and that's the beginning era of Hu Jintao. Key later is nicknamed the Woman with bound feet. His presidency is sometimes called the collective presidency because there was really an inability for just him alone to make decisions, and so it ends up being this like ten year period of China being a multinational playground where rules aren't really enforced, just like.

So Apple gets in a sense a misleading picture of what it's like to operate in China because when they really consolidate production, it's two thousand and three, and that's the beginning era of Hu Jintao. Key later is nicknamed the Woman with bound feet. His presidency is sometimes called the collective presidency because there was really an inability for just him alone to make decisions, and so it ends up being this like ten year period of China being a multinational playground where rules aren't really enforced, just like.

This Honeymoon, this Honeymoon Golden Era, where like sort of China on easy mode.

This Honeymoon, this Honeymoon Golden Era, where like sort of China on easy mode.

Absolutely, yeah, and so Apple's really taken aback to the point of just total confusion and having an inet response when Xijinping really comes in and as I said, what happens is like CTTV, which you could think of as like a state sponsored CNN of the country, attacks Apple for warranty differences of all things. It basically excuses Apple of treating the Chinese customers in an inferior way by refurbishing phones rather than giving them new phones when certain problems are happening with them. And I have to say this is the prologue to the book because basically opened the book and in the first paragraph apples and crisis. And so I'm trying to go for like a white lotus opening, if you will, before it becomes like this nice beach read with the overhang of suspense that you know that you know it's going to hit the fan by twenty thirteen. But I have to say the narrative leading up to it is wild, which is that in two thousand and eight, for the Beijing Olympics, Apple opens its first store in China, purely as a marketing opportunity for the Olympics. I mean they're actually happy that the site they've been given is small, because everybody assumes it's going to lose money. You have to remember that for the first iPhone, Steve Bomber, Microsoft's CEO, laughed at the price, and he's referring to American buyer saying, no one's going to pay six hundred dollars for an iPhone. So if you can understand like that, nobody thought it was going to work in America. Why would there be a retail sector in China, a country with developing wages and no appetite for such an expensive product. Well, by twenty ten, the iPhone just becomes the most conspicuous symbol of I've made it in China, and to such an extent that, like the lines outside what are now four stores in China at the time, there's thousands of people. They're snake climbing around these stores. But the thing is they're not like Joe and Tracy excited for the next iPhone and just camping out overnight because I have to have it. It's migrants that have been trucked in like by the bus load to buy as many iPhones as possible. So these quasi gangsters, these scalpers known as yellow cows, can a mass, let's say, ten thousand phones and go to a city where there is no Apple store, and they sell them at hawked up inflated prices because it's such a conspicuous status symbol. I don't want to go on and on about this, but essentially what happens is you have to understand these gangsters are connected with the triads, and they begin finding ways to make more money per iPhone than Apple, but they're illegal ways. They're buying phones in the US using fake IDs, so they're buying them for less than one hundred dollars because they're buying a twenty four month contract but only paying the first month. They're smuggling them into the country, they're zapping the processor, rendering the damn thing irre inoperable, but at the same time masking that it's a stolen phone essentially, and Apple is totally flum mixed, not understanding what's going on, not understanding Chinese culture, certainly not understanding Chinese politics. And this is the origin story of the warranty differences. It's because Apple was trying to clamp down on these illegal practices, and that story sort of gets lost in translation. But that's why China's so upset with Apple in twenty thirteen.

Absolutely, yeah, and so Apple's really taken aback to the point of just total confusion and having an inet response when Xijinping really comes in and as I said, what happens is like CTTV, which you could think of as like a state sponsored CNN of the country, attacks Apple for warranty differences of all things. It basically excuses Apple of treating the Chinese customers in an inferior way by refurbishing phones rather than giving them new phones when certain problems are happening with them. And I have to say this is the prologue to the book because basically opened the book and in the first paragraph apples and crisis. And so I'm trying to go for like a white lotus opening, if you will, before it becomes like this nice beach read with the overhang of suspense that you know that you know it's going to hit the fan by twenty thirteen. But I have to say the narrative leading up to it is wild, which is that in two thousand and eight, for the Beijing Olympics, Apple opens its first store in China, purely as a marketing opportunity for the Olympics. I mean they're actually happy that the site they've been given is small, because everybody assumes it's going to lose money. You have to remember that for the first iPhone, Steve Bomber, Microsoft's CEO, laughed at the price, and he's referring to American buyer saying, no one's going to pay six hundred dollars for an iPhone. So if you can understand like that, nobody thought it was going to work in America. Why would there be a retail sector in China, a country with developing wages and no appetite for such an expensive product. Well, by twenty ten, the iPhone just becomes the most conspicuous symbol of I've made it in China, and to such an extent that, like the lines outside what are now four stores in China at the time, there's thousands of people. They're snake climbing around these stores. But the thing is they're not like Joe and Tracy excited for the next iPhone and just camping out overnight because I have to have it. It's migrants that have been trucked in like by the bus load to buy as many iPhones as possible. So these quasi gangsters, these scalpers known as yellow cows, can a mass, let's say, ten thousand phones and go to a city where there is no Apple store, and they sell them at hawked up inflated prices because it's such a conspicuous status symbol. I don't want to go on and on about this, but essentially what happens is you have to understand these gangsters are connected with the triads, and they begin finding ways to make more money per iPhone than Apple, but they're illegal ways. They're buying phones in the US using fake IDs, so they're buying them for less than one hundred dollars because they're buying a twenty four month contract but only paying the first month. They're smuggling them into the country, they're zapping the processor, rendering the damn thing irre inoperable, but at the same time masking that it's a stolen phone essentially, and Apple is totally flum mixed, not understanding what's going on, not understanding Chinese culture, certainly not understanding Chinese politics. And this is the origin story of the warranty differences. It's because Apple was trying to clamp down on these illegal practices, and that story sort of gets lost in translation. But that's why China's so upset with Apple in twenty thirteen.

I want to.

I want to.

Correct the record here, which is I do not, in fact camp out in front of an Apple stores waiting for the latest iPhone. I think my iPhone is like seven or eight years old. It works so well these days, you really don't want to play exactly. I am the customer that Apple hates because I am very satisfied with my ancient phone.

Correct the record here, which is I do not, in fact camp out in front of an Apple stores waiting for the latest iPhone. I think my iPhone is like seven or eight years old. It works so well these days, you really don't want to play exactly. I am the customer that Apple hates because I am very satisfied with my ancient phone.

Okay, seriously, what model of iPhone you have? Is it really an eight? Or well?

Okay, seriously, what model of iPhone you have? Is it really an eight? Or well?

This is I really don't I don't know either.

This is I really don't I don't know either.

If you had asked me ten years ago, what model iPhone do you have? I would have been able to answer right away. If you asked me right now, I have no idea.

If you had asked me ten years ago, what model iPhone do you have? I would have been able to answer right away. If you asked me right now, I have no idea.

I bought it.

I bought it.

That's years ago. It's been so long since I've thought that it was important to know the differences. You know, at one point I was like, oh, that's a lot different. Now it's like, there's the game seems so marginal at this point from each generation, at least as someone.

That's years ago. It's been so long since I've thought that it was important to know the differences. You know, at one point I was like, oh, that's a lot different. Now it's like, there's the game seems so marginal at this point from each generation, at least as someone.

That's not you know, it's just cringing right now, I hear that. Yeah, I don't care.

That's not you know, it's just cringing right now, I hear that. Yeah, I don't care.

Yeah, you said something interesting that at the time of the rush to China, there was this sort of consensus in the West that this was a good thing because it would accelerate the process of democratization of liberalization, the likes of which maybe we've seen in Korea, Taiwan, so forth. On the other hand, in theory, one of the things that business leaders really liked about doing business in China was the fact unions aren't legal. There's this heavy hand of the state that keeps wages in check, and keeps organizations in check, and probably keeps environmental groups in check, et cetera.

Yeah, you said something interesting that at the time of the rush to China, there was this sort of consensus in the West that this was a good thing because it would accelerate the process of democratization of liberalization, the likes of which maybe we've seen in Korea, Taiwan, so forth. On the other hand, in theory, one of the things that business leaders really liked about doing business in China was the fact unions aren't legal. There's this heavy hand of the state that keeps wages in check, and keeps organizations in check, and probably keeps environmental groups in check, et cetera.

How much was this.

How much was this.

Tension not appreciated that this phenomenon that we may be expected to see play out in China of liberalization and democratization would have been explicitly not what the business leaders going to this country would have wanted to see.

Tension not appreciated that this phenomenon that we may be expected to see play out in China of liberalization and democratization would have been explicitly not what the business leaders going to this country would have wanted to see.

I mean, there's absolutely a sense that business people had just like agreed sense of why they wanted to be in China. But I guess what I'm trying to push back against is because it's like obviously a strategic error in retrospect and obviously we experienced the China shock and our own industries got hollowed out. I feel like now there's just like a revisionist sense that like, we were never doing this for valid reasons. There was never a sort of like real geopolitical strategic sense, right that Bill Clinton or Larry Summers were just like in the pocket of business people and so forth. I just don't really find that convincing. Taiwan was under martial law until the late nineteen nineties, effectively, maybe it was the nineteen eighties, but then in the late nineteen nineties they had their first democratic elections. This is of course an ethnically Chinese island, and you know, it was very much used. I mean, however problematically, it was used as an example of we could export democracy through capitalism. I do think there was a track record and people made that argument in good faith, in addition to business people who saw it for their own purposes.

I mean, there's absolutely a sense that business people had just like agreed sense of why they wanted to be in China. But I guess what I'm trying to push back against is because it's like obviously a strategic error in retrospect and obviously we experienced the China shock and our own industries got hollowed out. I feel like now there's just like a revisionist sense that like, we were never doing this for valid reasons. There was never a sort of like real geopolitical strategic sense, right that Bill Clinton or Larry Summers were just like in the pocket of business people and so forth. I just don't really find that convincing. Taiwan was under martial law until the late nineteen nineties, effectively, maybe it was the nineteen eighties, but then in the late nineteen nineties they had their first democratic elections. This is of course an ethnically Chinese island, and you know, it was very much used. I mean, however problematically, it was used as an example of we could export democracy through capitalism. I do think there was a track record and people made that argument in good faith, in addition to business people who saw it for their own purposes.

So one way of describing that Apple China relationship is they're sort of frenemies, right. There is a tension built into the relationship, but both sides got something out of it. If we fast forward to today's environment, we have tariffs in the US obviously, although no one knows what's going to happen with those. You have China making a very conscious decision to build up its tech sector. Who has the upper hand in the relationship right now? Who is the power?

So one way of describing that Apple China relationship is they're sort of frenemies, right. There is a tension built into the relationship, but both sides got something out of it. If we fast forward to today's environment, we have tariffs in the US obviously, although no one knows what's going to happen with those. You have China making a very conscious decision to build up its tech sector. Who has the upper hand in the relationship right now? Who is the power?

So I would push back, I would not call them frenemies. Tim Cook and Chiesiping, broadly speaking, have the same interests, which is to say, the more that Apple is allowed to have its production consolidated into China, the better their scale is, the better their margins are, et cetera. That's what Chijinping wants as well, because he understands, basically because Apple taught him that having Apple production in the country engenders a form of technology transfer that helps the rest of the electronic sector, which is a quote China scholar an economists very not and that is the most important thing that Chijinping wants, right. I mean, I compare Apple's presence in China to something like that of the Marshall Plan, something that sounds insane until you look at the numbers and you realize that it's bigger than Marshall Plan. So the problem is actually that Donald Trump and Tim Cook have diametrically opposed interest which is to say that if Donald Trump could move all production out of China, he will. Well, Apple doesn't want that. That's an existential threat quite. I really mean that that's an existential threat to a three trillion dollar company. So that's where the tension is. The tension really isn't between Cook and she, as strange as that is, it's between Cook.

So I would push back, I would not call them frenemies. Tim Cook and Chiesiping, broadly speaking, have the same interests, which is to say, the more that Apple is allowed to have its production consolidated into China, the better their scale is, the better their margins are, et cetera. That's what Chijinping wants as well, because he understands, basically because Apple taught him that having Apple production in the country engenders a form of technology transfer that helps the rest of the electronic sector, which is a quote China scholar an economists very not and that is the most important thing that Chijinping wants, right. I mean, I compare Apple's presence in China to something like that of the Marshall Plan, something that sounds insane until you look at the numbers and you realize that it's bigger than Marshall Plan. So the problem is actually that Donald Trump and Tim Cook have diametrically opposed interest which is to say that if Donald Trump could move all production out of China, he will. Well, Apple doesn't want that. That's an existential threat quite. I really mean that that's an existential threat to a three trillion dollar company. So that's where the tension is. The tension really isn't between Cook and she, as strange as that is, it's between Cook.

You really don't think there's tension between Apple and China, even with the tech crackdown, even with Xijinping coming out. One of the first things that he says is that criticism of Apple, and clearly he's trying to like extract some things from the company that the company is maybe reluctant to give up.

You really don't think there's tension between Apple and China, even with the tech crackdown, even with Xijinping coming out. One of the first things that he says is that criticism of Apple, and clearly he's trying to like extract some things from the company that the company is maybe reluctant to give up.

And the rise of really good Chinese competitors that are winning market share all around the world, maybe outside the US.

And the rise of really good Chinese competitors that are winning market share all around the world, maybe outside the US.

Yeah, so Tracy's examples are historical, right, So I'm not saying there's never been tension. Of course, there's been loads of tension, but the way that Apple responded was in effect to playcate federal and provincial officials so that they haven't really had any problem. Right. So there's a tension relationship, let's say, But insofar as it's a marriage, I think it's actually a pretty it's a Catholic marriage. There's not going to be a divorce. It's going pretty well. The problem isn't really between Apple and China. The problem is to use the economic jargon, the negative externalities of the relationship. Right. So the problem is that for everybody else this is actually deeply problematic because if you have America's top engineers training, a manufacturing supply chain that in effect can be weaponized, and world's dominance, that's not a great place for Washington or just your average American citizen. It's nice that this relationship gives us relatively sophisticated and affordable iPhones, but the downside here is that China is absolutely dominant in high end electronics, and you can use those skills to build drones, you can use those skills to build military weaponry. And Apple would frankly be training their chip makers if it weren't for a Senate coming down on them pretty hard a couple of years ago. So that's the problem, right. The problem isn't that something stops in the relationship between Apple and China. The problem is that it continues.

Yeah, so Tracy's examples are historical, right, So I'm not saying there's never been tension. Of course, there's been loads of tension, but the way that Apple responded was in effect to playcate federal and provincial officials so that they haven't really had any problem. Right. So there's a tension relationship, let's say, But insofar as it's a marriage, I think it's actually a pretty it's a Catholic marriage. There's not going to be a divorce. It's going pretty well. The problem isn't really between Apple and China. The problem is to use the economic jargon, the negative externalities of the relationship. Right. So the problem is that for everybody else this is actually deeply problematic because if you have America's top engineers training, a manufacturing supply chain that in effect can be weaponized, and world's dominance, that's not a great place for Washington or just your average American citizen. It's nice that this relationship gives us relatively sophisticated and affordable iPhones, but the downside here is that China is absolutely dominant in high end electronics, and you can use those skills to build drones, you can use those skills to build military weaponry. And Apple would frankly be training their chip makers if it weren't for a Senate coming down on them pretty hard a couple of years ago. So that's the problem, right. The problem isn't that something stops in the relationship between Apple and China. The problem is that it continues.

Just good to push back on this framing a little bit and I certainly there is much that I find very compelling.

Just good to push back on this framing a little bit and I certainly there is much that I find very compelling.

About this story.

About this story.

But you talk about the beginning of when the US and Chinese economies really got integrated in the late nineties early two thousands, sometime around Chinese ascension into the WTO, Like everyone recognizes in retrospect that it's been a mistake, and has it been?

But you talk about the beginning of when the US and Chinese economies really got integrated in the late nineties early two thousands, sometime around Chinese ascension into the WTO, Like everyone recognizes in retrospect that it's been a mistake, and has it been?

I mean again, the other thing is.

I mean again, the other thing is.