Apple iPads: Vietnamese switch will fortify a vulnerable supply chain

Apple is moving some iPad production out of China to Vietnam. The shift will protect the device maker against political interference and supply chain disruption. Both risks are currently elevated in China. Vietnamese companies will not benefit greatly, however.

Apple products, from iPhones to MacBooks, are mostly assembled in China. The tech giant has stuck to this despite years of tensions between the US and China as well as threats of blacklists and punitive tariffs. AirPods have been the exception to the rule. Apple moved mass production of these earbuds to Vietnam in 2020.

Shifting the production of pricier iPads, which account for a third of the global tablet market, would be a much more decisive change. Most parts suppliers are currently in China, close to assembly plants.

Politically the timing is right to diversify. US commerce secretary Gina Raimondo has warned that the Biden administration is actively considering adding new Chinese companies to economic blacklists. The US is investigating alleged sanctions evasion by China.

Shanghai is moving towards ending the strict two-month lockdown that has badly disrupted global manufacturing. The effects of factory closures are expected to be long-lasting because of a backlog of orders.

Chips remain in short supply. The Shanghai lockdowns mean supplies are equally stretched for low-tech parts, such as printed circuit boards. These are used in all forms of electronics. Local supplies of copper foil — a key material — have been severely disrupted too.

Hopes of a windfall for Vietnamese component makers are misplaced. Companies that have a head start in building factories to Apple requirements in China will claim the biggest rewards. Apple’s existing suppliers are guaranteed a place at the front of the line. These include BYD of China, Taiwan’s Hon Hai Precision, South Korea’s LG Display and Murata Manufacturing of Japan.

The relocations will benefit the Vietnam economy through the creation of manufacturing jobs. These should be relatively well-paid for a country where the average annual income was $2,800 in 2020. Chinese workers were making $10,400, World Bank data show. China’s loss will be Vietnam’s gain.