The surprising news that Apple plans to move much of the assembly of its iPhones and other products out of China is important for more than just stock analysts. It is further evidence that Western companies are beginning to realize the risks of doing business in an aggressive, authoritarian state.
When China joined the World Trade Organization in 2001, businesses flocked to the country. Its authoritarian nature was quietly part of its appeal. Without democratic pressures or dissent, the communist government could “get things done.” Large manufacturing facilities could be constructed in a fraction of the time needed in the democratic, environmentally conscious West. Low wages and weak labor unions whetted business’ appetites.
The massive offshoring of manufacturing jobs to China had enormous global effects. In the developed world, wealth transferred from production workers to consumers. It also flowed to the technical and financial elites who spearheaded the moves. Economic growth skyrocketed in China and other countries that supplied raw materials to the behemoth. In terms of narrow economic efficiency, it was a classic case of free trade creating many more winners than losers.
The problem is that human beings are not purely economic animals. The loss of manufacturing jobs upended the lives of millions of people and devastated their communities. The pain was worsened by the knowledge that it was all engineered by their fellow citizens, who evidently cared more about the whims of autocrats abroad than the lives of their own kin at home. It engendered deep resentments and helped destabilize the globalist system itself.
The rise of Xi Jinping in China is now showing businesses the downsides of an insulated autocracy. The same powers that made quick industrialization in China possible also led to the country’s disastrous “zero covid” policy, which keeps factories shut. The government, which used to bend over backward to attract business, now treats Western companies with the same disdain it treats ordinary Chinese people. Xi’s “harmonious society” is only harmonious when everyone does his bidding, regardless of the consequences.
China’s centralized decision-making has also led to the rise in global tensions that have made trade with the nation increasingly fraught. No doubt, the Chinese people are proud of their thousands-year-old civilization and recent accomplishments. But how many of them would choose to devote so much of their still limited resources to the massive military expansion Xi has initiated? Unfortunately, their opinions, like those of Western businesses, simply don’t matter to the communist rulers in Beijing.
Thus, Apple seems to have made an expensive and difficult decision to relocate to places such as India and Vietnam. Each nation has its disadvantages; India’s federalist democracy makes planning harder, as does Vietnam’s relatively small size and high levels of poverty. But Apple is willing to take on these considerable risks to significantly decouple itself from the whims of an ambitious dictator.
Other businesses are coming to the same conclusion. A third of the respondents to the American Chamber of Commerce in Shanghai’s annual survey this year said they had redirected planned investments in China elsewhere. European businesses are also rethinking their investments amid covid lockdowns and increased ideological tensions. European governments have taken note of Beijing’s tacit support for Russia’s invasion of Ukraine and are slowly realizing that economics does not justify their friendliness with autocrats.
This is a painful but necessary reckoning. China under Xi is not interested in adhering to what German Chancellor Olaf Scholz recently called “an international order based on the principles of the U.N. Charter.” It rejects the idea of natural human rights applicable to all people. In fact, the efficiency that Western business once admired is based on that rejection, as the heinous use of slave labor in Xinjiang province demonstrates.
Some businesses and their allies in government will try to avoid this conclusion, much as British Prime Minister Neville Chamberlain tried to avoid concluding that Nazi leader Adolf Hitler was bent on conquest. But facts are facts, and even those unwilling to see them will eventually open their eyes.
Apple won’t like the costs it incurs as it moves out of China. But staying undermines the very rules-based order it and others rely on. That’s a cost even the most bottom-line-focused companies can’t risk.