Inside Apple’s China: Secrets, Supply Chains, and Geopolitics

Apple: the company that made you believe your phone is magical, your charger is proprietary, and your values are still intact.

In this episode, Chad & Cheese welcome FT’s Patrick McGee, who rips the sleek aluminum lid off Cupertino’s best-kept secret: how Apple accidentally became China’s greatest workforce trainer, economic investor, and nation-builder.

Move over, Marshall Plan—Tim Cook just dropped a casual $275 billion in Beijing’s lap like it was a tip at brunch.

🔥 Inside:

• The “Gang of Eight” (no, not Marvel villains—Apple’s secret China crew)

• Vocational schools, iPhones, and ghostwritten investment math

• Why Apple’s entire PR strategy is basically Jedi mind tricks

• And why India’s “Made Here” dream is more Bollywood than business

Apple gave China the playbook, the players, and the gear—now they might be coming for the car keys (and your EV market).

Don’t worry, it’s only the future of global manufacturing. No biggie.

📱 Click play. Before Tim Cook gets mad and makes it disappear.

PODCAST TRANSCRIPTION

Joel Cheesman (00:29.784)

Yeah, this is the Chad and Cheese podcast. I'm your co host Joel Cheesman. Chad Sowash is writing shotgun and we are so excited to welcome Patrick McGee, Financial Times reporter and most importantly for this interview, the author of Apple in China, Patrick, welcome to HR's most dangerous podcast.

Chad (00:36.11)

Give it up!

Patrick Mcgee (00:49.88)

Looking forward to it guys, thank you.

Joel Cheesman (00:51.842)

Very good. So while I'm saying, mean, after, after, John, yeah, John Stewart and, you know, prof Jean, wherever else you've been, I hope that you're ready for the tsunami of attention that this show is going to rain down upon you. hope you're ready. Hope you're So financial times and author pretty, pretty, pretty basic stuff. What, what should, our, listeners and watchers know about, about you?

Chad (00:52.014)

He's been everywhere. He's been everywhere, man. He's been on Jon Stewart. He's been on Prof G now.

Chad (01:08.218)

Can't wait, can't wait. No, book sales, book sales. That's the thing. That's

Patrick Mcgee (01:08.654)

Publicis is very excited.

Patrick Mcgee (01:21.134)

Well, I mean, that probably is the stuff I suppose what's worth knowing maybe is for the FT I've written from Hong Kong, Germany and Apple. And if you sort of think like, where did the idea for the book come from? It's the culmination of those three things on Hong Kong. I was obviously learning about China. This was the time of what the Hong Kong is called the umbrella revolution when they were sort of protesting against authoritarian Beijing and, know, maybe not going for democracy full scale in Hong Kong, but at least sort of more independence or at least the status quo.

as Beijing was sort of tightening its grip. Germany was very much covering the Volkswagen scandal, but really what that meant was I was covering German industry and being in and out of factories all the time. It sort of my introduction to supply chains and had to get up to speed pretty quickly. And then Apple. And so if you take sort of China, supply chains and Apple, you sort of get the birth of the book.

Chad (02:08.548)

So where did all the basis of research come from? Where'd the source material come from? Because it feels like you've got tons of insider information.

Patrick Mcgee (02:19.586)

Yeah, I was really happy when there's an Apple blogger named John Gruber and he said, you know, most books are like a long magazine article that did well and then you pad it out for 300 pages and your book seems to be like really dense throughout, like the density of a magazine article but for 400 pages. And that really is what it is. I I actually didn't know all that much about Apple's first 25 years, even after covering the Apple beat for four years. I just never had thought it was all that relevant.

So some of the early chapters are really like me grappling with early Apple history as it was written through books and by speaking to some people. But the vast majority of the rest of the book is really just based on interviews with people. So I mean, I would ask Chet GBT various questions about Apple history and Apple's relationship with Chinese government or who built the translucent iMac and everything.

Chad (02:54.458)

Mm-hmm.

Patrick Mcgee (03:08.384)

I just got all of those answers wrong. And the reason why is like that stuff just hasn't been written. There's never been a manufacturing angle applied to Apple, at least in the 21st century. mean, Apple used to build their own computers. And so that was part of the angle, you know, famous Harvard business review cases and stuff like that. But for whatever reason, you know, like Steve Jobs or people around Steve Jobs to talk about the reality distortion field. And I kind of think Apple reporters are caught up in that as well. We focus on the things Apple wants us to focus on.

Chad (03:29.882)

Mm-hmm.

Patrick Mcgee (03:36.844)

which is like the beauty and sophistication of their hardware and product features. And this week is a great example. So I don't know exactly when this is being published, but WWDC is this week. And I mean, it's all about the features of their software called Liquid Glass and all this kind of stuff. And so most of the reviews are just all talking about Liquid Glass. Now, maybe it's good, maybe it's bad, but we're sticking with the Apple narrative. And so I tried to totally get outside of what Cupertino wanted us to report on and look at instead about the...

Joel Cheesman (03:44.334)

Mm-hmm.

Chad (03:45.934)

Mm-hmm.

Patrick Mcgee (04:04.598)

sort of most sensitive underbelly of the company, which is how the sausage gets made, right? You know, someone compared the book to Upton Sinclair, which was kind of amazing, right? The guy who sort of exposed how the meat industry worked. And yeah, that was my big goal. So the book is primarily based on more than 200 interviews. I'm only counting the people at Apple or with Apple experience. I talk to other people as well in supplier network. But as a result of Apple being a very secretive company,

which is usually a frustrating thing as an Apple reporter. If you take two years off as I did and you're doing nothing in your life but trying to talk to Apple people, it means that whenever you break through, you are inherently getting novel information because if you talk to people at a secretive company who haven't talked before, you're only dealing with new facts and figures so long as you're asking the right questions. So my job was really just to take what I had learned from an astounding number of hours of interviews and just make it compact into a 400 page book and sort of weave it all together.

Chad (05:00.004)

How does Apple have such control over the narrative? That to me is fascinating. I mean, we'll get into the manufacturing and all the other fun stuff, but when you start to see, obviously, whether it's Google I.O., whatever it is, but it seems like Apple has such a great, I should say, they have total control almost over the narrative.

Patrick Mcgee (05:22.604)

Yeah, I mean, I can only speculate. think in part just because so many people watch their events that you sort of have to have a handle on all the things that Apple is announcing because, know, they've got five million, 10 million, 20 million people watching their keynote speeches. And so you sort of need to pay attention to that. And there's such an audience, let's say, for what the next Apple product is going to be that it sort of gears your scoops towards like

Chad (05:46.874)

Mm-hmm.

Patrick Mcgee (05:49.646)

Why don't I get ahead of Apple and find out what the next features are going to be? But in a sense, to make the case that we've covered Apple wrong, I would just point to like maybe two or three things that are all in the book. I profile Isabel Gamahi in the book. She is the current head of China for Apple. She's the only managing director in the company, which has 160,000 employees. She's been at Apple since 2008, and she's been the head of China for seven years.

Chad (06:07.108)

Mm-hmm.

Patrick Mcgee (06:16.93)

She's never been profiled in any depth before. mean, the number of people who even know her name is astoundingly slim. And like, that's pretty bizarre. mean, China is the most important market for Apple overseas and the most important base for producing everything. And ostensibly it is the most covered company on the planet. And we don't know two things about Isabel Mahi. That strikes me as strange. The other thing is that I discovered more than a thousand pages of internal Apple documents that were made public in court discovery.

that hadn't been reported on. I discovered that 16 months ago and no reporter in that time period even found it, let alone spent the 60 hours to go through it like I did. We're talking about depositions of Tim Cook and Luca Maestri, the CFO, internal emails between Tim Cook and the board of directors, an internal competitive analysis of Huawei as a threat, all sorts of, I mean, just a total goldmine if you're an Apple reporter and...

Chad (06:51.139)

Wow.

Joel Cheesman (07:11.854)

you

Patrick Mcgee (07:13.902)

it's sort of indicative of how much we are caught up in the reality distortion field that a book like mine can have such novel information. Like I sort of think the book I wrote, A, I don't know why it hadn't already been written, right? Why in 2018 didn't someone write Apple in China, right? I mean, that would have been more than a decade. I mean, lucky for me, yeah, but I also just didn't know how much there was to uncover. I mean, what's really interesting is a lot of people will say,

Chad (07:31.896)

Yeah. Good for you. I didn't. Yeah.

Joel Cheesman (07:32.024)

Yeah.

Patrick Mcgee (07:40.576)

If I send them the book, they're like, well, I already know Apple's narrative. Like, why would I read this book? And then they get like pages in and they're like, I don't know any of this. And I tried to sort of keep that bar throughout the entire book. So I think if you, if you feel, you know a lot about China and especially if you think, you know a lot about Apple, I think you get stunned pretty quickly at just how much novel information there is. And it's not because I'm brilliant, but it's because the people I spoke to are brilliant. They haven't spoken to journalists before. They agreed to speak with me.

Joel Cheesman (08:07.33)

Mm-hmm.

Patrick Mcgee (08:10.374)

And I think I structured it really well. The writing is nothing particularly special about the writing. I'm not Proust, I'm not Joyce, but the structure of the book was really well done because I took two years off to really work on that. So yeah, I mean, that's what I would say. But I don't know why it hadn't been written before, but it was quite the sort of silver platter to be able to go after it for two years.

Chad (08:31.012)

Let's jump into the meat real quick. for the listeners out there, I think one of the biggest numbers that surprised me was the amount of money that Apple is spending in China every single year. Can you hit us up with that peak times, what it looks like now, and how Apple, to some extent, is really the reason why China looks like it does today?

Patrick Mcgee (08:54.35)

Yeah, basically the narrative point is that Apple is sort of put, like has a gun put to its head in 2013 when state sponsored newspapers all attack Apple in what I call a digital blitzkrieg for three weeks. I mean, it is on the cover of what you might call the state sponsored CNN called the People's Daily. Well, consumer, okay, so consumer day is the first attack. So Apple is sort of taken to task for having

Chad (09:13.54)

Was that consumer day?

Chad (09:18.276)

Okay.

Patrick Mcgee (09:23.022)

treated Chinese customers in an inferior way to the rest of the world. And so CCTV hosts this thing called Consumer Day every year. So on March 15th of every year, companies are called out for not living up to the socialist ethos of the country. This is my opening prologue. And Beijing is, I'm sorry, Cupertino is totally flummoxed as to what's going on. mean, I've actually learned more about this from new sources since the book was published. So you had teams within Apple in China watching Consumer Day because they knew that it was about to happen.

And being totally flummoxed by the secret footage of customers in the Apple Store in France, the Apple Store in somewhere in America, asking questions about returns and then the secret footage happening in China where the Chinese customers are being given a different warranty policy. And none of them really understand what's going on here. And unpacking that narrative and sort of solving that riddle of what went on was sort of one of the biggest achievements of the book.

Because in 2013, this was really widely covered, not just the Associated Press and Reuters, but New York Times, The Atlantic, and all these places. And I really feel like I solved why Beijing went after Apple. And I'll have to say, maybe read the book if you want the full narrative. But the most basic thing is that Xi Jinping sort of understandably sees Apple as this exploitative power that is not in China for China, which is the thing that he really wants. And the Chinese are very sensitive to being exploited.

because before the rise of the Communist Party in 1949, they called the previous 100 years the century of humiliation. This is when they had to give up Hong Kong, when they were involved in the Opium Wars, which if you don't remember, mean, they're called the Opium Warms because Britain basically forced opium exports into China against the will of Beijing. It's not a very pretty episode if you're a Westerner. It's like someone pushing fentanyl into America today against the will of Washington.

you know, wouldn't look kindly upon that country. And that's the role of Britain, unfortunately. I'm getting way ahead of myself here, way back into Chinese history, but some of this is pretty fascinating in the book. Anyway, the point is that for reasons we don't need to go into, Cupertino feels threatened and they worry that their products are going to be blacklisted. And so they hire or name a team of executives that call themselves the Gang of Eight. And these are people who are basically the first senior people living in China for Apple. So Apple has been in China

Chad (11:32.431)

Mm-hmm.

Joel Cheesman (11:32.642)

me.

Patrick Mcgee (11:44.16)

in a sense since 1993, if you're including the channels business, but really since 2000 for building stuff and really since 2008 in terms of selling stuff at the online Apple store. And yet no senior person has ever been living in the country. They're orchestrating events from afar and they're sending their top engineers in by the plane load to train and audit and supervise all these factories. sort of compare it to Uber being the world's biggest taxi provider without owning any taxis.

Joel Cheesman (11:51.576)

Mm-hmm.

Patrick Mcgee (12:12.456)

Apple managed to become the world's best manufacturer without owning any factories. so Apple has to basically turn this on its head. And so what the gang of eight working with the government relations team figure out is we are contributing an amazing amount of what the Chinese call indigenous innovation. And true, we're not doing it intentionally, but that is the impact of our operational presence in this country.

Chad (12:32.43)

Mm-hmm.

Patrick Mcgee (12:39.702)

and we need Beijing to understand it. Because if they understand just how much we're doing for hundreds of factories across the country, they will essentially remove the obstacles to us remaining here and they'll probably look upon us kindly. That's essentially exactly what happened. So in this process, they do their own supply chain study where they realize that they're investing $55 billion a year in 2015. And when Tim Cook goes to Zhang Nenghai, the citadel of communist power,

Joel Cheesman (13:02.136)

Mm-mm.

Chad (13:02.778)

55 billion.

Patrick Mcgee (13:06.766)

55 billion, I'll come back to what that figure means and stuff in a second. And so when Tim Cook goes to Jiangnan Hai in May 2016, just as Trump is campaigning on an America first platform and just as Trump is actually telling his users, his sorry, his fans to boycott Apple products. I mean, this is the climate that Tim Cook is operating in. He pledges, he basically takes that $55 billion figure, multiplies it by five and says to...

Chad (13:08.748)

Okay, okay.

Patrick Mcgee (13:32.218)

Chinese officials, we will invest $275 billion over the next five years. This number is so extraordinary that I could not find any corporate equivalent. In other words, you want to look at a company like Dell or something and find out how much they're investing and you just don't find anything close. So I had to look at government efforts and almost as a thought experiment, I decided to look at nation building efforts, not thinking that the numbers would be comparable and then being blown away that if you convert Marshall Plan spending.

Joel Cheesman (13:54.102)

Marshall Plan.

Patrick Mcgee (13:59.5)

In a sense, the plan that helped revive Europe after World War II, that's a four-year program that adds up to real adjusted figures of $131 billion. So Apple was investing in five years double what the Marshall Plan spent. And the Marshall Plan was for 16 countries. The Cook Plan, if you will, is for one country. And the Marshall Plan is actually, you some people think this isn't a great analogy or whatever. And like for whatever, it's imperfections.

Chad (14:03.268)

Mm-hmm.

Patrick Mcgee (14:28.736)

It, the imperfections actually all sort of point you in the direction of how big the Cook Plan is because the Marshall Plan isn't about industrial revival. It's partly about that, but it's also like half of the first year spending is just on food aid. And later you get agricultural revival, highways being built, railways being built, et cetera. The Cook Plan is exclusively about one sector, the advanced electronics industry, which China expert Barry Naughton has called, quote, the most important thing, end quote, for Xi Jinping. So it is

Joel Cheesman (14:52.066)

Mm-hmm.

Patrick Mcgee (14:57.708)

ruthlessly efficient, it is ridiculously targeted, and the caliber of talent that is undertaking the plan are America's top engineers rather than government bureaucrats. So if the analogy is imperfect, fine, but it's imperfect in ways that demonstrate just how impactful the Cook Plan was rather than the Marshall Plan.

Joel Cheesman (15:16.226)

Yeah. Patrick, I'm glad that you brought up some of the Chinese history, which I think a lot of our listeners probably don't know, but I'm also curious from the Apple side of it. know, Apple was basically bankrupt in 96 jobs comes back. I Mac is, is released iPod. We're off to the races was at what point did China go? damn. Apple is building us a workforce to not just build electronics, but build

Patrick Mcgee (15:27.789)

Yeah.

Joel Cheesman (15:46.018)

military equipment and build cars and build like was there a was there an inflection point where China clearly Realized what was happening and what they could benefit from Was it from the very early when they joined the WTO that said how can we get American companies in here to sort of train us on this stuff I know there's a lot of Tesla in your book as well as Apple in terms of how Chinese have bought at what was there an inflection point

that China knew what they had and that could use it to their advantage militarily and diplomatically.

Patrick Mcgee (16:16.408)

So the wake up call, if that's what you're asking for, really isn't until Cook goes to Jiangxi, which is described to me as music to the ears of Beijing. They really didn't know how Apple was operating in the country, and they certainly didn't know the extent of it. To be fair, I don't think Apple knew either until they do their own supply chain study. And as strange as that might sound, Apple, especially under Tim Cook, is very much an engineering organization. mean, the engineers were not sitting around pontificating

Chad (16:26.489)

Mm-hmm.

Patrick Mcgee (16:45.356)

state politics or even provincial politics in China. The people that have China expertise that joined Apple in mid 2010s are sort of stunned at the level of ignorance among officials at Apple in terms of, we think of Foxconn as the company that Apple outsources their assembly to. It's also the company that they really outsource their politicking to.

Chad (17:04.89)

Mm-hmm.

Patrick Mcgee (17:08.814)

So it's Terry Guo and Foxconn that really handle the political side of how to build factories and sort of score points with local officials. Apple doesn't take control of that until at the earliest 2013. And they're really quite savvy now. I mean, I want to be clear. They go from like zero to hero or something like that, you know, in terms of their understanding of Chinese politics over the last 12, 13 years. But I don't think it's really understood by Apple until the supply chain study. And it's certainly not understood by Beijing until Apple goes hand in hand.

or handing them glove to teach them all the things they're doing. And then Tesla is, in a sense, one of the beneficiaries of this because they agreed to adopt the Apple model and do for EVs what Apple had done for smartphones. But just to back up a little bit, Beijing since the 1980s has wanted technology transfer in the country and has had explicit policies of joint venture. So if me, Cheese and Chad want to go set up a business in China, that's fine.

Chad (17:56.835)

Hmm.

Patrick Mcgee (18:04.706)

but it's going to be 50 % owned by some Chinese entity. And the whole point of that is that the Chinese are going to learn from us and then sort of build their own business and thrive on their own. And the quid pro quo there is that the three of us are getting access to 1.4 billion people. So even if we're sort of willingly giving away some of our technology and know how it's going to be worth it, at least in the short term, and the Chinese sort of famously think long-term, so they think it's going to work for them. Technically that is supposed to be illegal after WTO in 2001.

Joel Cheesman (18:19.704)

Mm-hmm.

Patrick Mcgee (18:33.08)

but it never gets prohibited per se. It sort of evolves into what I call voluntary is the new mandatory. So there are ways that Western companies continue to do it. And the textbook example is high-speed rail. Sorry, there's a lot to unpack here, so I will stop.

Chad (18:33.272)

huh.

Joel Cheesman (18:44.59)

So you have Google around this time says, we're out of China because we're not willing to give up our data and everything about you. They don't let Amazon in, Facebook doesn't get in. Did that not play into Apple's calculus on should we be in China? Just the money and the share, it was just too much. Yeah, mean, there any come to Jesus moment at Apple where they said, hey, all of-

Chad (18:46.855)

yeah.

Chad (19:05.85)

Capitalism, baby. Capitalism.

Joel Cheesman (19:12.48)

Everyone in the valley is out on China. Maybe we should be too.

Patrick Mcgee (19:17.774)

So no, I think it's a short answer. But their experience is really different. And let's just give a sympathetic view to Apple here. All the companies you mentioned are in some way content or services companies. And Apple hasn't necessarily had great success in content or services in China, but they are a hardware company. And so it's almost unfair to compare Apple, a hardware company, with true companies that are in their size and geography, because it's Silicon Valley.

But if you compare them to hardware companies, electronics companies, Apple is not unique, right? Everybody in electronics is moving to China. And if anything, Apple is late to the game, right? The likes of Dell, HP, Compaq, everyone's already working with Taiwan and China, but the time Apple goes there. So they're not unique in that sense. What they're unique in is their business model, which is more hardware focused than any of the companies you mentioned or any of the Magnificent 7.

Chad (20:11.514)

So back to the Gang of Eight real quick. So Apple's Gang of Eight helped China see that they were, they being Apple, were the biggest aid in nation building, probably, for China, at least from the outside. How in the hell did the US see this and not demand that Apple and other companies also kind of like reciprocate? I mean, it...

Is it because Apple paid $22 billion in taxes last year? Is that good enough? It's amazing because all the training that happened, they trained what was it, 28 million people since 2008? And they've got a highly trained population now. I mean, again, this is a long, of like slow roll and boil, but this is where we're at today.

Patrick Mcgee (20:49.731)

Yeah.

Patrick Mcgee (20:57.902)

So the simple answer is that they didn't know. I mean, again, we in the media have failed to tell this story. I should give credit to Wayne Ma from the information of a task report who has covered supply chain and the initial $275 billion agreement, which was in 2016, was broken by Wayne in 2021. Now, what I don't think comes out of that reporting was a real tallying up of what the number was counting, why it was investment versus spend, and you have lots of confusion among readers as to

Chad (21:00.419)

Okay, gotcha.

Chad (21:08.047)

Mm-hmm.

Chad (21:15.159)

Wow.

Chad (21:21.433)

Mm-hmm.

Patrick Mcgee (21:26.69)

what the number really referred to. And I think my book goes into considerable detail about why it's counted as investment rather than spend. So for instance, we're not counting the bill of materials. It's not that Apple buys a whole lot of chips and aluminum chassis and things like that, and that adds up to 275. That is not even counted. That is zero dollars of that 275 billion. So if you were to add up that, you double or triple the figure immediately because the so-called bill of materials for the iPhone alone would be more than $50 billion a year.

Chad (21:35.194)

Mm-hmm.

Chad (21:50.905)

Wow.

Chad (21:55.418)

And they're buying that from local, I mean, they're generally buying a lot of this out of China, right? So, I mean, so you're talking about that first number and then the second number is like ginormous at that point.

Patrick Mcgee (22:02.03)

Yes, Apple's defense.

Patrick Mcgee (22:08.204)

Yes, and to be clear, that should not be counted as investment and it's not counted as investment because it's leaving China, right? Or maybe it's going to some Chinese consumers, but it's not an investment. so this is a little bit wonky. I don't know if this is where you want to go. So feel free to just edit this out after the fact. But if you're operating in China, let's say you're Walmart. Walmart earns more revenue than Apple. It's one of very few companies that does. they, according to some estimates, and I'm not a Walmart expert, a purchase is more than 60 to 70 % of their goods from China, right? So

Walmart, for instance, had $600 billion of revenue roughly last year. If they were buying 60 % of that from China, then, you know, just by the numbers, they are already sort of spending more in China than Apple. But that's not investment. You know, if they purchase kitchenware and action figures, plastic dolls, whatever else comes from China, and it just gets on a ship and goes to Walmart, it's not staying in China. That's not an investment. That is just spend. What Apple realizes

Government Affairs team and the Gang of Eight is that there's a concept in China called registered capital. And if you're a General Motors or if you're a Volkswagen, you can count certain wages as investment, as fixed asset investment, essentially, if you were training workers. So if you train workers how to build up the Volkswagen assembly line for the first 18 to 24 months, if you training them how to do this, it counts as registered capital. It counts as investment rather than spend. Once the

operational line is basically set up. You're no longer doing investment because the workers know what they're doing and they're just carrying out the tasks like any other work would, you know, building something from Walmart or something. Apple basically makes the argument to Beijing. We never really leave that phase because we don't set up a production line for the RAV4 and just build the same car for seven years. We are upending the iPhone, the MacBook, the iPad, AirPods every single year. We're using new materials, new techniques, new degrees of automation, et cetera. So we're continually training.

the workers. And so in a sense, what they're able to argue is that most of the wages of the three million people in China are in fact investment costs, are fixed assets, essentially, and therefore are registered capital. So they're counting that as investment. Now, someone could say, I don't like that accounting. That feels fuzzy to me or whatever. First of all, I would argue against that. But secondly, it's not an argument with me. It's an argument with Apple and it's an argument with Beijing because Apple came up with the argument and Beijing accepted the argument.

Chad (24:26.457)

Mm-hmm.

Patrick Mcgee (24:32.462)

So that's worth knowing and that's spelled out in some more chapters. But I think a lot of people on social media haven't read the book and so sometimes criticize the figure because they haven't seen where it derives from.

Chad (24:41.636)

So investment, you're talking about training, supply chain, manufacturing, mean all of those and machinery. Okay. Yeah.

Patrick Mcgee (24:46.294)

And machinery, machinery is massive, right? So something Apple does, which like doesn't have a name for it, but like it's not really outsourcing in the traditional sense. Outsourcing implies that the three of us come up with some sort of design and we send the blueprint over to some capable factory who knows what to do and conjures it into existence. That's never what Apple does. Apple trains their suppliers to come up with the next generation of components and parts. It actually does the machinery behind the processes.

You know machine that builds the machine as Elon Musk sometimes calls it it even does the software for those machines and crucially of course it mounts them the machinery in other people's factories and They're not supposed to be able to use it for other products But in many cases they either do or they reverse engineer those machines So you basically get to copy the CNC machines that Apple installed on your factory floor for instance And of course, you know Chinese factories are very adept at at doing that

So yeah, it's not just the people, it's the machinery. But what that means is that the suppliers and Apple supply chain aren't just working beyond their perceived capabilities, they're working beyond their actual capabilities because Apple is training them and giving them machinery that they otherwise couldn't afford. So the impact of this in the early 2000s is monumental. The impact of this today is probably much less because the Chinese are now so adept and world leading and have their own robotics and automation.

which in a sense means there's a certain loss of control on the part of Apple, but it's been brilliant for Apple's margins because they have not outsold the number of iPhone units they shipped in 2015. That was the peak year for iPhone, but they continue to make more iPhone revenue because the phones cost more and their margins are higher. And it's largely because Chinese companies operating in China are footing more of the bill, if you will, by owning and operating the machinery themselves rather than having Apple do it for them.

Joel Cheesman (26:33.038)

So you talk about training and equipment and I'm curious your thoughts. I this is a show primarily about hiring, recruiting, talent, et cetera. That's a ton of people that have jobs in China now because of Apple that wouldn't have had them otherwise and jobs that probably aren't in America because Apple made this decision. And when you, when you see the chips act.

Patrick Mcgee (26:50.659)

Yes.

Joel Cheesman (26:56.652)

When you see, you know, Howard Lutnick talking about bringing these factories back and Americans screwing in little screws, and iPhones, your comment about automation, in China, where, where are we with China actually needing people to the degree that they did before? Can we actually bring these jobs and plants back to America? Has that ship sailed? I'm just curious what your thoughts are in the current landscape of all this transfer of talent and equipment, cetera.

Chad (27:00.548)

You

Patrick Mcgee (27:27.31)

So there's sort of this fever dream, if I'm not being too harsh, that if we can just automate everything, then we don't need 400,000 people in Zhengzhou putting together the next iPhone, and so maybe it can come to America. Look, I would love for that to happen. There's nothing in my ideology that's like preventing me from seeing that picture or something. But A, everything that can be automated in the iPhone supply chain already is automated. Like the final steps of the process really are handcrafted.

in a way that you know, seats in a Ferrari are or something, right? Like there's a lot of like hand touches for a luxury product. Kind of amazing for something that is shipped in the quarter billion units per year. But there's all kinds of automation in the process. So people either think it's either automated or it's handcrafted. It's both. Maybe we can get to a stage because of AI advances applied to manufacturing where more and more stuff really is automated.

Chad (28:07.866)

Yeah.

Patrick Mcgee (28:22.734)

you know, a lights out factory where basically it's just being orchestrated by a few clever engineers. And if that's the case, people think, well, why can't it happen in Pittsburgh? Look, if that can happen, amazing. The trouble is even then you are working with, you know, mined metals and refined materials, et cetera. And all of that is happening in China. So it's not as though if we just have a breakthrough in automation, it all transfers here. You're still having to put stuff into the lights out factory. And unfortunately, all of that stuff is currently happening in China. And who's going to come out with the lights out factory?

Well, at the scale that Apple needs, it's going to be Chinese companies because they're the only ones sort of doing the partial steps today because China, I think I'm getting this right, has more operational robots in its factories than the rest of the world combined. And if I'm slightly getting that wrong, it won't be wrong within a year or two. You know what I mean? Like the advances they are making are absolutely incredible. And they have a lot of leverage to keep that business in China rather than see it go off to Ohio.

Chad (29:00.036)

Mm-hmm.

Chad (29:11.16)

Yeah.

Chad (29:21.24)

Yeah, well, we've seen so we actually talked to an entrepreneur who she said she was doing all the research to try to onshore her product called Busy Baby. She's been she's been on the on the trail as well. Yeah, yeah, she's on the daily. Did all the math. And that's what was so interesting for me is that even if she could onshore, she would have to buy the equipment from China because she could not get it here. She would have to buy the materials because she could not get it here.

Patrick Mcgee (29:34.424)

She was on The Daily, right? The New Yorker, yeah, I remember her.

Chad (29:50.49)

in the US. that to me, it just it's like you're talking about this fever dream. I don't think you're being mean at all. I mean, it does seem like a fever dream. It seems like we haven't thought through much of this and trying to blanket everything with a tariff.

Patrick Mcgee (29:52.504)

Yes.

Patrick Mcgee (30:06.35)

That's the great irony of introducing all these tariffs because I get that you want to build stuff in America, but so many of the parts, components, metals, materials are all coming from abroad that you can't just do this all at once. You need some sort of tiered system where over the course of many years, things get tariffed at a different rate if you're not taking action, but just giving it at a 25 or even 145 % rate all at once.

Chad (30:09.7)

Mm.

Patrick Mcgee (30:32.01)

is just mind bogglingly stupid. I mean, it is not going to produce the intended effects. And if you look at the history of tariffs, I it's just all sorts of unintended impact. mean, silly things like we tariffed cotton coming from Japan, I think in the seventies or eighties. And the result was that synthetic fibers like Lycra became the huge import from Japan because they were exempt from the tariffs, right? So it's like people and entrepreneurs find ways of getting around this stuff.

Chad (30:46.424)

Mm-hmm.

Patrick Mcgee (30:57.794)

that doesn't sort of just align with the ideological goal of he who announces the tariffs.

Chad (31:02.404)

Joel's always wearing lycra pants. real quick, vocational schools in China. That is pretty much Apple's doing, pretty much, right? The amount of training. And Joel and I talk about, you know, when we went to school, high schools, we had vocational training back then, and it was ripped out by Reagan, trickle down economics, whatever the hell you want to call it, right? But it's gone. It is vanished. But we're seeing Apple pretty much subsidizing that in China.

Joel Cheesman (31:02.648)

Mm.

Chad (31:32.09)

Is there any opportunity, do you think, especially now that the book is out, now the information is out, that we can start to ask companies to do that back in the US, to be able to get our individuals skilled back to the point where, I mean, we can actually compete with China, maybe not in small manufacturing, but in other ways.

Patrick Mcgee (31:52.654)

Yeah. So I used to live in Germany covering the auto industry. And what's fascinating is they have a dual track program for education where when you're 15 or 16 years old, you essentially choose whether you're going to take a sort of more academic route, studying something like humanities, like I studied, or whether you want to go the vocational route. And I feel like in Canada, where I'm from or America, like that's maybe even looked down upon in Germany. It's not right. Like you are going to end up being an apprentice at BMW, which is a great employer. Um, and you're going to be learning, you know,

Chad (31:55.427)

Really?

Chad (32:19.705)

Mm-hmm.

Patrick Mcgee (32:21.448)

combination of like hands-on how to work with machine read. These days it's often more likely that you're holding an ipod than it is a hammer. But you're doing like the practical training in addition to the sort practical education. And I love that idea and Germany has sort of done very well in it. I want to be more optimistic about it but Germany's economy actually really hasn't experienced growth over the last five years.

And if there's one country that's experiencing the same overexposure to China problem that Apple has, unfortunately it is Germany. So I sort of say, idealize that system with some caveats right now that it's actually not working out incredibly well. I mean, a friend of mine has just written a book called, I think, Broken Republic about Germany. So I don't want to be sort of, you know, esteeming the German system too well, but there's nevertheless a bunch of models to learn from them.

The occasional school comment, I have to say this came out of the Daily Show with Jon Stewart and I stand by it, but it's not based, it's not in the book. What I'm referring to is that the manufacturing design engineers who go over to China by the plane load, they would describe the training that they offer to China, to Chinese factories as the Ivy League equivalent of hardware engineering. know, another person said the training we offered was second to none.

And if you look at yeah, the fact that they've trained 28 million people I don't think it's an unfair comparison at all to say that Apple has played the role of a great vocational school Not that they're giving lectures. Of course, they're not giving lectures They're giving on-the-ground training and the the proof is in the pudding to get the metaphor right this time that that Huawei, Oppo, Xiaomi, etc. are all world-leading when it comes to building smartphones and EVs are as well and I think the

Chad (33:32.996)

Wow.

Chad (33:36.783)

Yeah.

Chad (33:56.324)

Okay.

Patrick Mcgee (33:58.286)

triumph of Apple, if you will, has had this unheralded impact on the entire electronic sector, specifically around four industrial clusters, Shanghai, Suzhou, Shenzhen, and Chengdu. The impact is just really hard to grapple with. mean, I'll just give one figure from, you know, it's nice to go with incontestable figures in a sense, right? Because then it's harder to argue against. So the official tally.

From Tim Cook and this is a few years ago But of how many people in China are working on the Apple supply chain is three million people The official tally of how many Americans across all industries are working to fulfill Chinese demand Okay, so from 1.4 billion customers is as low as 1 million and as high as 2.6 million So regardless of which estimate you take one Super corporation has more of an impact on job creation in China and all Chinese people's demands

Chad (34:32.535)

Mm-hmm. Yeah.

Patrick Mcgee (34:56.29)

have for across all industry on America. I mean, sorry, these are mind-bogglingly large numbers. Every number you need needs to be put into context because otherwise our brains just can't compute. Sorry, I could go on, but yeah. Apple's influence is enormous is the conclusion there.

Chad (35:02.159)

Yes.

Joel Cheesman (35:13.016)

I want you to, if you could for me, take out the crystal ball. it sounds to me like China's got us by the short and Curly's. and we are currently in negotiation. We're in a tear for by all accounts. tick tock is still legal in America, even after a bipartisan, legislation to ban it. What does the world look like, at the end of the year is China making American iPhones in India?

Is there a major conflict that you're envisioning? Like what does this look like in a year?

Patrick Mcgee (35:47.758)

So I think there's just a failure of imagination on my part. I don't see much but the status quo. So look, Apple is moving some operations to India, but it's more make believe than reality at this point. When they say the phone is going to be made in India, and they never say this directly, it's through reporting, right? But I think you can tell that Apple is orchestrating the move because it sounds good for them. Really what's being moved so far is final assembly. So if you think that there are thousand steps in making an iPhone, if the final one is done in India,

Chad (35:58.479)

Mm-hmm.

Patrick Mcgee (36:17.612)

That is a quote unquote substantive change to the product. So legally you can say it was made in India and legally you can avoid tariffs. Trump has come out against that, which really does sort of throw a wrench into the system that Apple's trying to do because Apple wants to build like the breadth and depth of the supply chain in India over the next 10, 15, 20 years. So Trump making that difficult for them puts Apple in a bind where they either have to sort of contravene the president's statements.

or give up their India plans. Neither of those options is very good. But Beijing also has the same, well, maybe to put it differently, Beijing and Cupertino, broadly speaking, have the same interests. Both of them would prefer to just keep making everything in China for different reasons, obviously, but basically the partnership works really well for them. So Beijing has put up blockers, if you will, of sending...

Chinese people that have the experiential know-how of how to run the production lines of them going to India, right? So they're not able to get visas. And the machines, the robotics, sort of like we talked about earlier, a lot of that is built in China and China is making it difficult to send that to India as well. So India is sort of like the next logical place to move. If you're a contract manufacturer, if you're a supplier and a lot of your stuff is labor intensive and you're chasing labor and not just in terms of cost, but in terms of abundance and in terms of,

India actually subsidizing some of this stuff through various schemes to scheme sort of has a bad, you know, North American context. But but in India, which is sort of British English scheme is just a word for program. Right. So various programs like I think it's all made in India or make in India. So so I'm getting off track here other than to say that the moves to India, a aren't all that substantive.

Chad (37:41.754)

Mm-hmm.

Patrick Mcgee (38:07.094)

And B, insofar as they are going to be substantive, both Washington and Beijing are against it. And that is going to make it really quite difficult. So when I just look at sort of the chessboard or the risk board of the world map, I just see China getting better and better at this kind of stuff. And nobody else has a sort of Nietzschean will to power based on manufacturing prowess the way China does. So I don't know that anybody competes with them. Because as much as you could say a lot of it's moving to Vietnam, Vietnam doesn't have the scale.

that China has. It's never going to be a massive threat. India does have the scale. They don't have the skill. And insofar as Apple wants to build the skill there, supply chains move really slowly and B, the two superpowers are both against it. So I don't know what the rosy optimistic scenario is here. And to be fair, I'm not calling for therefore a collapse in Apple revenues or something. I think Apple continues to build stuff in China and everything's basically fine. The caveat being that AI is taking on more more precedence and Apple sort of failing there.

Chad (38:35.15)

Yeah. Yeah.

Patrick Mcgee (39:02.094)

and the failure is more pronounced in China because they can't even use sort of chat GBT, which is like sort of their escape hatch here. So I do see problems there, but I'm not necessarily predicting some sort of demise of manufacturing prowess on the part of Apple. But I do quote someone saying, the relationship they enjoy with Beijing could blow up any day.

Chad (39:21.892)

So talking about phones for the most part in this case, but talk about BYD, Huawei, Xiaomi. Did Apple combine with VW and Tesla literally just give China the lead in EVs? And do we have a chance in getting that back? know that Ford CEO has been driving a Xiaomi. I don't know if he's given it back yet or not farly and said that he, no, he said he loves it. He said, it's a beautiful car. It's a wonderful car. Have we lost?

Patrick Mcgee (39:43.15)

I've not heard that.

Chad (39:51.19)

Automotives because EVs next whether we want to believe it or not. It's that that's what's happening next China's got the lead when it comes to when it comes to EVs Have we lost that have we lost that fight too?

Patrick Mcgee (40:05.326)

So let me just say I really was more optimistic about the West in 2016 to 2020 when I was living in Germany and reporting on the German automotive industry, because it felt to me like they understood the threat of Tesla. And Tesla was a tiny company back then. especially, I mean, maybe not in terms of market cap, because I think that's when they overtook GM around 2016. But in terms of market share, I mean, it was kind of pitiful in a certain degree.

Chad (40:21.86)

Yeah.

Patrick Mcgee (40:31.778)

And you could look at a company like Audi, just like the luxury unit of Volkswagen. And it looked like once Audi introduced batteries, they would just wipe the floor with Tesla. That did not happen at all. I mean, the Germans really struggled to migrate into EVs. And you can sort of understand why. The sort of heart of the car, brain of the car, however you want to put it, really is the internal combustion engine. And that's what the Germans are so damn good at. And so by taking that away and replacing it with batteries,

Joel Cheesman (40:31.918)

Mm-hmm.

Patrick Mcgee (40:56.494)

You're really taking away the IP of the Germans. And so there's great reluctance on the part of the labor forces and the labor forces really do have great power within Germany. The Chinese on the other hand, have the battery supply chain on lock. mean, whether you're looking at the cathode, anode or just the other battery IP, and we were talking 70, 80, 90 % of the material is all coming from China. And maybe some of the cathodes and stuff are the materials.

Chad (41:19.481)

Mm-hmm.

Patrick Mcgee (41:22.894)

What am I trying to think? Cobalt is mined from places like Congo, but then it's all refined in China. So we are at a massive disadvantage as things go towards EVs. Tesla is doing quite a good job of having three localized supply chains that really are not exposed to China. The supply chain around Berlin is very German. The supply chain around California and Texas is very American. Tesla is, as they say, the most American-made car you can buy.

Chad (41:44.57)

Mm-hmm.

Patrick Mcgee (41:49.23)

On the other hand, the one around Shanghai is very Chinese. so Tesla sort of adopted the China model by training up the local supply chain, who then use their skills to upgrade BYD, Xiaomi and everything else. So they played quite a role there. I think an unheralded one, and I don't think one that I'm overstating, because sometimes people will say that doesn't sound right, because that wasn't until 2019. The Chinese have been building EVs since 2001. And it's like, true. How concerned were you about Chinese EVs in 2018?

Chad (42:17.626)

Not at all, yeah.

Patrick Mcgee (42:19.648)

Exactly. Tesla really changes the game. it's before Trump 2.0 comes on that Biden is the person who introduces 100 % tariffs on Chinese EVs. So the Chinese EV story takes a radical step forward within 24 months of Tesla setting up its operations in Shanghai. And it's because Tesla adopts the Apple model, literally hires people with Apple experience, and begins training the local supply chain.

Joel Cheesman (42:46.494)

It's the end of the world as we know it and I feel fine. That is Patrick McGee, everybody, the author of Apple in China. Patrick, for our listeners and watchers that want to know more about you, maybe buy the book. Where do they go?

Patrick Mcgee (42:59.854)

I'd love for you to buy the book. Of course it's on Amazon. Bookshop.org is a site that I find few people know about. It sort of operates like Amazon, but it distributes books through your local independent bookseller. That's great. But you know, it's basically everywhere. I mean, I hope it's in the window of your local bookshop. And if it's not, please yell out the staff for me. Get it in the window. But it should not be difficult to find. And it is on Apple Books, which honestly, I give loads of credit to Apple for that. I like that they're not sort of selecting, know, out selecting it, let's say.

Chad (43:17.818)

It's on Apple.

Chad (43:23.353)

Yeah.

Patrick Mcgee (43:27.403)

And appleintrina.com is my website, so you can find more material there, can find reviews. Yeah, not a difficult book to find, I hope.

Joel Cheesman (43:35.662)

Thanks for your time, Patrick. Chad, that is another one in the can. We out.

Chad (43:37.178)

Thanks, Patrick. We out.