There is an old proverb that when two elephants fight, it is the grass that gets hurt. This is the case for Apple Inc. (NASDAQ:AAPL) whose iPhones are assembled by the Chinese industrial giant, Foxconn in China.
The lengthy trade war between China and the U.S threatens the business relationship between the two countries. The U.S government has been threatening to implement strict restrictions that will make it harder for Chinese companies and U.S companies do conduct business together. This means that existing business relationships may turn sour and companies such as Apple might end up taking a hit. However, that might not necessarily be the case for Apple.
Foxconn has been evaluating the situation so that it can determine the best course of action that will help it save its lucrative relationship with Apple for iPhone production. The Chinese company is reportedly planning to build a new factory for iPhone assembly in Mexico.
Adapting to the changing business dynamics
Both China and the U.S have been threatening to implement tariffs against each other. Unfortunately, both sides are not is willing to back down and any negotiations have ended up in a stalemate. Businesses that provide goods and services for the U.S market are expected to take a hit and this will also be the case for companies that source production support or raw materials from China. This is why the relationship between Apple and Foxconn is at stake and the upcoming tariffs might make it significantly more difficult to sustain the relationship.
Foxconn believes that shifting its operations to another country might be far much easier than weathering the unfavorable tariffs if it continues to produce iPhones in China. This highlights the extent of damage that the new tariffs are expected to cause. Insider sources revealed that Foxconn plans to decide whether to launch a production facility in Mexico before the end of 2020. If it decides to move forward with the plan for a factory in China, it will likely be constructed early next year. Such a move would allow Foxconn to bypass the tariffs while saving its relationship with Apple.