Processors, Pixels and Power – Geopolitics of Technology – Part One

“Apple in China”. Can one company and its association with a country, a history of their actions, decisions and relationship give us a sense of how technology and globalization have evolved over the past few decades? Can it also provide us with a broad understanding of the current state of affairs and the brewing storm over technology controls, export restrictions, tariffs and trade wars? Yes, and the book, “Apple in China” by Patrick McGee does all that. It is a fascinating read and while it is a story of Apple’s supply chain, it takes us through the evolution of its relationship with China and its impact on both the company and the country and their rapid ascent to technology and economic leadership. McGee provides us rare insights through a blend of geopolitics, industry dynamics, and corporate decision making told through the lens of Apple’s complex, high stakes relationship with China

In hindsight, what started as a well-intentioned business decision turned out to be a Faustian bargain that Apple finds itself with today. Apples relationship with China is a fascinating window into the history of not just Apple, but also about how Chinese companies benefited in the process. Over decades, Apple developed a complex relationship with suppliers like Foxconn and the Chinese Communist Party. Starting with the manufacturing of iMac in the late nineties, Apple concentrated its manufacturing base in China, which was the only country that possessed the capability to offer labour in quantity and at a price point that was unmatched. By 2015, Apple was investing $55 billion per year in China, and in 2018, the company had installed $18 billion worth of machinery in its supplier’s factories.

But more than the financial investment, it was really the investment that Apple made in training the manpower that was more consequential. Folks, wrap your head around this - According to Apple, it has trained more than 28 million workers in China since 2008, which is larger than the entire labour force of California. Add to this, all the investment in hardware and related stuff, the numbers are staggering and easily would exceed the $52 billion that Biden’s government had earmarked to boost America’s semiconductor ecosystem. This training allowed those suppliers to apply their newly developed skills to domestic production, and the result was the household brands of today: Huawei, Xiaomi, Vivo, and Oppo. As Apple taught the supply chain how to perfect multi-touch glass and make the thousand components within the iPhone, Apple’s suppliers took what they knew and offered it to homegrown companies led by Huawei, Xiaomi, Vivo and Oppo. Today, some of these premium products come with specs that are increasingly ahead of American design and have outsold Apple in many major markets.

For many of us following the news around Apple, China and Trump, this might seem like an inevitable trap in which Apple finds itself. It is easy for us to arrive at the conclusion, coloured by the recent events, that how disastrous a strategy it was for Apple to concentrate so much of its manufacturing capacity in China. But Apple simply could not have become the company it is today without China, which apart from cheap labour offered it something that was not available elsewhere, of flexibility and speed. It is also about how Apple used China as a base from which to become the world’s most valuable company, and in doing so, inextricably chained its future to the whims and fancies of the CCP, and today is caught in the crosshairs of Geopolitics.

The decision by Apple to move its manufacturing to China was momentous. During his first stint at Apple, Steve Jobs took enormous pride in Apple’s in house manufacturing. But when things went downhill in the early nineties, they had to sell their Colorado plant out of financial necessity, just before Jobs’s return as Apple was days away from insolvency. During Jobs second tenure post 1997, the use of contract manufacturing proved to be a resounding success but only after some experimentation. LG tried to build iMacs in Wales only for the line to become known as the ‘toaster line’ for its tendency to see those machines burst into flames.

Enter Terry Gou and his Taiwanese firm Foxconn that would eventually take the majority of Apple’s contract manufacturing and lead the way into mainland China, where they delivered high quality products at scale with flexible manufacturing at ultra-low margins. Terry Gou at the same time got generous doses of help from the Chinese government and the local provincial authorities, who would pave the way for the construction of the huge manufacturing plants that Foxconn needed. China at the turn of the millennium was in the process of joining the World Trade Organization, and was aspiring to move up the value chain, from being a low-tech and cheap textile manufacturer to be a superpower in high-end technology manufacturing. Its leaders were banking on an export-led economy that would learn from foreign investors. Starting in the 2000s, Foxconn constructed entire settlements for Chinese workers building Apple electronics and first up on the new assembly lines were iMacs that were produced by what became known as “China speed.”

While it is easy to assume that China’s huge population gave Apple access to huge numbers of cheap labour, the state orchestrated second-class migrants into a “floating population” of more than 220 million adult workers. State-backed organizations commissioned companies to drive buses into rural areas to hire unskilled workers, so-called dispatch labour and move them to Apple’s vast network of suppliers for seasonal production. As McGee highlights in his book, Apple’s need for Chinese labour would fall below 900,000 in the slow months of spring but then ramp up to more than 1.7 million in the peak season before iPhone launch. Apple didn’t just need an enormous pool of cheap labour, it needed a dynamic, flexible supply of cheap labour to support its product release cycle.

As Apple designed and introduced its range of breathtaking products, iMac, iPod, iPad and iPhone, it also demanded that unprecedented manufacturing techniques be applied at scale for every one of those product releases, requiring not just the specialized machinery that Apple provided to its suppliers, but also the guidance and training required to use them.

While Apple on one side engaged in what McGee calls as the “Apple Squeeze”, requiring its suppliers to operate on razor-thin margins in producing its products, those suppliers were free to apply the knowledge they gained for the benefit of domestic phone manufacturers. Foxconn and its suppliers would gain from this, copying Apple designs when making products for other firms.

At first Cook and his team were outraged, calling it ‘the worst thing in the world’. But they soon came to accept it as an inevitable cost of doing business in China. They resigned to the fact that the innovations it came up with would be mimicked in China, usually within a year. This was simply the cost of doing business there. Apple could keep secret particular processes, or demand exclusivity, but the duration of such agreements rarely went beyond twelve months. Efforts were made to prevent suppliers from openly offering the exact same design and process to Apple's rivals, but suppliers could at least approximate what they'd accomplished and offer it to others. To understand how deeply they are intertwined, Foxconn, now the largest private-sector employer in China, developed several component and assembly sites around China for Apple, including massive complexes in Shenzhen and Zhengzhou that employ 300,000 to 400,000 people at their peaks. The Zhengzhou facility reportedly was able to hire 50,000 workers in a single month in preparation for the launch of the iPhone 16 last year.

While China’s central government was at the periphery during the first decade and a half of Apple’s presence in the country, there were episodes of friction. As noted by Michael Enright of Hinrich Foundation:

· “Apple has had to deal with the Chinese Communist party, the Chinese state, and Chinese state-owned enterprises since it entered China. The three powerful state-owned telecom companies control mobile services in China. Apple’s negotiations with China Mobile began in November 2007 and ended unsuccessfully in early 2009. Apple then reached a three-year exclusive deal with China Unicom and official iPhone sales in China started in late 2009. Apple went on to sign additional distribution agreements with China Telecom in December 2012 and China Mobile in December 2013, finally reaching distribution through all three firms six years after its first attempt.

· Apple has adjusted its China activities to comply with telecommunications, data, and services regulations. The introduction of the iPhone into China was delayed and its internet functionality initially removed to satisfy regulators. Apple began storing China data at facilities owned by state-owned China Telecom in 2014 and after the enactment of China’s 2017 cybersecurity law shifted all the data for its China iCloud customers to data centres run by a company owned by the Guizhou provincial government. Apple shut its online book and movie services in China in 2016 in response to new regulations limiting online content provision.”

When Xi Jinping came to power in 2013, he was immediately suspicious of Apple and its approach to doing business in the country. Apple was soon on the receiving end of hostile actions from the new regime as state media campaigns targeted Apple’s Western “arrogance.” Chinese media were unleashing invectives on the company for supposedly cheating Chinese consumers on the issue of warranties and there were rumours circulating that Chinese government officials were being told not to use the iPhone, which was considered an American status symbol. Apple has repeatedly had to make major concessions to defend its business in China. Apple acquiesced to Beijing’s demands and removed the New York Times app from its online store in China. As Xi cracked down on labour rights activism, more independent audits of the Apple supply chain ceased.

In response to being at the receiving end of hostile actions from the Xi’s new regime, Apple launched a campaign to make it clear how aligned their approach to doing business in China was with the objectives of Xi’s government. The logic was straight forward: Apple's investments weren't just large; they were ruthlessly efficient and narrowly targeted in the advanced electronics sector and this was a very important thing for Xi. Conveyed in the right language, this impact was wildly supportive of Beijing's goals to learn from the West and move up the value chain. Until this time, Apple never felt the need to deal directly with the government and its face in China was Foxconn, which handled all matters related to government and policy.

To make amends, in 2016, Tim Cook travelled to Beijing to make an extraordinary pledge to senior Chinese officials: they would invest $275 billion over the next five years. To put this value into context: in 2016 dollars, it’s more than double the amount committed by the US to the Marshall plan for reconstruction of Europe after the Second World War. As a part of this deal, Tim Cook is supposed to have signed a secret five-year agreement with Chinese officials in which Apple agreed to support Chinese initiatives in advanced manufacturing and software, increase training of Chinese engineers, increase mainland Chinese companies share in Apple components and assembly, invest in Chinese technology companies, and cooperate with Chinese universities on new technologies. In return, Apple was reportedly able to reverse negative views of the company among China’s leaders; was allowed to operate iCloud, Apple Pay, and its App Store; and was exempted from several rules other foreign companies had to follow.

Apple’s travails continue and in 2024 iPhone sales in China were hurt as Apple had not achieved a solution on AI functionality that could pass the scrutiny of Chinese regulators. Apple's attempt to partner with Alibaba to integrate its AI into iPhones has hit the Great wall. Regulators in the United States, citing national security, are pressuring Apple to abandon this collaboration, while at the same time, China's Cyberspace Administration is dragging its feet on approvals. The result? Apple's AI features lag behind Huawei's and Xiaomi's phones. China's 2025 subsidy program, which boosts sales of phones under ¥6,000, excludes Apple's premium models. While Xiaomi and Huawei dominate mid-range markets with subsidized devices, Apple's iPhones remain stranded in a luxury niche. This isn't just a pricing problem, it's a strategic failure on Apple’s part to align with local tech ecosystems. While Apple fumbles, Huawei is racing ahead. Its foldables, AI-driven chatbots like DeepSeek R1, and self-developed chips have now captured 3% of China's smartphone OS market, a direct threat to Apple's dominance. Huawei's HarmonyOS, designed for global expansion, is a geopolitical weapon, backed by China's state-driven innovation. Unfortunately, Apple finds itself at the center of the US-China technology and trade war. One possible scenario that might play out is, ”The United States could expand its restricted entity list to include Alibaba's AI division, cutting Apple off entirely. China might retaliate by banning Apple's trade-in programs or blocking iPhone updates”. Both scenarios spell disaster for Apple's 16.8% revenue dependency on Greater China.

Can Apple break free from China?

US-China trade tensions of 2018-19 during Trump’s first term and the disruptions from Covid-19 in 2020-2022 led Apple to seek to reduce its over dependence on China and reduce the vulnerability of its supply chain. In 2022 Apple decided to move 40% to 45% of iPhone production to India and the assembly of a portion of other products to Vietnam. By January 2024, Apple’s suppliers, including Foxconn, had invested US$16 billion since 2018 on production capabilities outside of China. Analysts estimate that it would be feasible to migrate a significant portion of iMac production, but more difficult to migrate the bulk of smartphone production and it would take many years. By 2024, US$14 billion worth of iPhones was assembled in India in the 12 months ending June 2024, representing 14% of global iPhone production.

Apple is rapidly expanding its manufacturing footprint in India as it shifts away from dependence on Chinese production. In April 2025, Apple shipped 2.9 million iPhones from India to the United States, marking a 76 per cent year-on-year increase, meanwhile Chinese iPhone exports to the US plunged by the same percentage, dropping to 900,000 units from 3.7 million in April 2024. The pivot from China comes amid US President Donald Trump’s threats of imposing a 25 per cent tariff on imported iPhones unless manufacturing is brought back to America. However, Apple has opted to maintain its Indian expansion strategy, deeming it economically viable despite the tariffs. According to an analysis, "In terms of profitability, it's way better for Apple to take the hit of a 25 per cent tariff on iPhones sold in the US market than to move iPhone assembly lines back to the US."

Foxconn, one of Apple’s key suppliers, is doubling down on Indian operations with a fresh £1.5 billion investment to expand its Chennai facility and a new unit in Karnataka slated to begin deliveries soon. Tata Electronics, Apple's second-largest Indian manufacturer, is also increasing capacity at its Hosur plant and recently acquired a majority stake in Pegatron’s local unit. While India’s growing role in Apple’s global strategy is evident, limitations remain. It is estimated that by 2026, India will be capable of fulfilling only 80 per cent of the US demand, approximately 20 million iPhones per quarter. The bottleneck lies not in being able to replicate the technical expertise, but in scaling volumes as India begins producing premium Pro and Pro Max variants. One also has to be more realistic about this whole India shift. Apple has built its manufacturing ecosystem in China over two decades and with over 200 suppliers, it remains deeply entrenched into the Apple supply chain. Shifting complete assembly lines is not going to be an easy job and even if it happens, it might take many years.

China has expressed its displeasure with this diversification, opening tax and land-use investigations of Foxconn in October 2023, which many analysts have linked to Apple’s efforts to diversify its production base. New Chinese restrictions on the export of dual-use products, technologies, and services applied as of 1st December 2024 have made the export of equipment, materials, and technology Apple wishes to send to other places subject to new and lengthy inspections and delays. These moves signalled that Apple has to tread carefully with its plans to reduce dependence on China, as it cannot decentralize overnight and its China activities remain subject to retaliation.

The irony is that despite all the noise and blustering from Trump, wanting Apple to manufacture in the US, it is China that might be the show spoiler for Apple’s plans to scale its manufacturing in India. China views Apple's India expansion as a strategic threat to its position as the world's leading tech manufacturer. China is hindering Apple's plans by restricting the export of key manufacturing equipment and obstructing the deployment of skilled Chinese engineers to India. Over 300 Chinese engineers and technicians working at Foxconn's Indian facilities, crucial for Apple's iPhone production, have been reportedly told to return to China. These engineers were not only involved in assembling devices but also in training the Indian workforce and technology transfer. Beijing has pressured regulatory agencies and local governments to restrict the movement of skilled labour to India and Southeast Asia. Chinese authorities are reportedly delaying or blocking the export of critical manufacturing equipment, including machinery needed for iPhone assembly, to India. Export approval times for essential equipment have increased significantly, from weeks to months.

While Apple and its suppliers are resorting to complex workarounds like using front companies in other countries to get the necessary equipment, this is not going to be easy for Apple considering the broader Geopolitical dynamics. Apple finds itself doing a very delicate balancing act and the outcome is anyone’s guess, and the jury is still out.

Final Words

Multinationals like Apple have long benefited from globalizing their technology development and operations by pooling data and talent, standardizing software, and centralizing hardware. This helped global players to convert scale into a driver of efficiency and ultimately as driver of competitive advantage. But what we are witnessing today is the fragmentation of technology along geopolitical fault lines, due largely to competition over the development of Semiconductors and AI. This in turn is making globalized supply chains into a liability and a source of major strategic business and financial risk. In the real world, this risk plays out in myriad ways, and Apple is a classic case study.

According to BCG:

· “More than ever, the world’s largest economies are intertwined. Today, approximately 40% of S&P 500 companies’ revenues are generated in foreign markets. Talent is spread across the globe too, a trend that has had a big impact on technology: 45% of the tech staff (excluding IT help desk roles) at the world’s largest companies are located outside their headquarters country. And in 43% of the companies analyzed, tech staff was split across ten or more foreign markets.

· Moreover, in the past decade, exports of digitally deliverable services, such as financial, health, and education services, as opposed to services that are not digitally deliverable, such as maintenance and repair or transportation, have outpaced growth of overall exports of services. So, while the world’s economy became more globalized, technology became more central to the flow of goods and services across national boundaries.”

Sudden regulatory action resulting from volatile geopolitical tensions can severely disrupt a multinational’s strategy and operating model and affect its ability to cost-effectively deploy or adapt technology across geographies.

Welcome to the New Normal!

As a continuation of this article, in the second part, I will dive into the “Geopolitics of Semiconductors", and area that has generated enough concern and interest over the past few years but might see more action in the coming years.