FIRST REMEMBER THE HONG KONG
DISTURBANCES ARE WITH WE'RE
GOING ON TRADE.
SPEAKING OF WHICH CHINA IS
FACING LONG-TERM EFFECTS EVEN IF
A TRADE DEAL IS SCORED.
WE'RE GETTING REPORTS THAT APPLE
IS SERIOUSLY EXPLORING A
POSSIBILITY, MAKING GOOD CHUNK
OF ITS PHONES MAYBE UP TO A
THIRD, OUT OF CHINA UP TO OTHER
LOCALES.
NO MATTER WHAT HAPPENS ON THE
TRADE FRONT.
WE HAVE STANFORD BUSINESS SCHOOL
LECTURER DAVE DOTSON ON THAT.
PROFESSOR THIS, FOLLOWS OTHER
COMPANIES CONSIDERING THE EXACT
SAME THING.
WHAT DO YOU MAKE OF IT?
>> WELL, I THINK IF APPLE MOVES
1/3 OF THEIR JOBS, A THIRD OF
CHINESE JOBS OUT OF CHINA AND
MANUFACTURES THEM IN VIETNAM AND
INDIA, TO CHINA WILL BE ONE BIG,
WHO CARES.
HERE IS THE THING, NEIL.
CHINA WILL LIKELY TRADE A FEW
LOW SKILLED MANUFACTURING JOBS
FOR APPLE'S PHONES IN RETURN FOR
WINNING SMARTPHONE MARKET IN
ASIA.
APPLE EMPLOYS 3 MILLION PEOPLE
DIRECTLY OR INDIRECTLY IN CHINA.
THAT SOUNDS LIKE A LOT.
IF THE WORKFORCE IS 776 MILLION
PEOPLE.
IF HALF A MILLION JOBS MOVE
OFFSHORE AWAY FROM CHINA, THAT
IS NOTHING FOR CHINA TERMS OF
THEIR WORKFORCE POPULATION.
SORRY ABOUT THAT.
BUT WHAT IS INTERESTING IS THIS,
DURING THIS WHOLE TIME HUAWEI IS
WINNING THE SMARTPHONE MARKET IN
CHINA.
THEY HAVE NOW UNSEATED APPLE AS
NUMBER TWO PROVIDER OF
SMARTPHONES IN CHINA.
THAT'S THE BIG NEWS.
THAT IS A STRUCTURAL CHANGE IS
NOT LIKELY TO CHANGE.
WHY CHINA IS CERTAINLY WILLING
TO TRADE A FEW LOW SKILLED
MANUFACTURING JOBS TO WIN THE
SMARTPHONE MARKET IN ASIA.
THEY WILL WIN IT FOR A LONG TIME
AND HERE'S WHY.
FIRST OF ALL, AS A RESULT OF THE
TRADE WAR, NATIONALISTIC
TENDENCIES IN CHINA, ESPECIALLY
THE WAY THE UNITED STATES TALKED
ABOUT HUAWEI, THE SHIFT FROM
APPLE OR ANDROID PHONES TO
HUAWEI PHONES IS SEMIPERMANENT.
PEOPLE DON'T GO BACK AND FORTH
BETWEEN PHONES THEY USE.
HERE IS THE SECOND THING, THE
THING POTENTIALLY A HOME RUN FOR
HUAWEI AND WHAT WILL HER APPLE
IN THE LONG RUN, HUAWEI WILL
DEVELOP THEIR OWN OPERATING
SYSTEM.
ONCE THEY HAVE THEIR OWN
OPERATING SYSTEM, THEY DON'T
NEED GOOGLE.
THAT IS THE PRICE WE'LL PAY IN
THE LONG RUN.
NEIL: I WONDER IF OTHER
COMPANIES FOLLOW WHAT APPLE IS
DOING?
MANY COMPANIES PREDATE APPLE.
THEY HAVE MOVED LOCATIONS TO
CHEAPER LOCALES, TAIWAN, ONE
DISTRIBUTOR MOVED TO MEXICO JUST
AS THOSE TARIFFS WERE BEING
MENTIONED, LEAVING THAT ASIDE,
THEY DON'T WANT WHAT IS DRIP,
DRIP, TO TURN INTO A FLOOD
EXODUS, DO THEY?
>> NO OF COURSE.
THESE ARE UNINTENDED
CONSEQUENCES AFTER LONG-TERM
TRADE WAR.
WE WERE HOPING FOR ARE A
SHORT-TERM TRADE WAR, WE COULD
TWEAK SOME TARIFFS AT CHINA.
THEY WOULD COME TO THE TABLE, WE
WOULD MAKE CHANGES IT WOULD BE
FINE.
WHAT IS HAPPENING WE'RE SEEING
THROUGHOUT THE WHOLE GLOBE
TRADING PATTERNS CHANGING.
NOT JUST IN APPLE iPHONES.
IT IS IN SOYBEAN MARKETS.
ACROSS HOW OUR AUTOMOBILE
MANUFACTURERS ARE SUPPLYING
THEIR STEEL AND ALUMINUM.
WE'RE SEEING A WHOLE RESET IN
GLOBAL SUPPLY CHAINS.
GLOBAL SUPPLY CHAINS ARE LIKE
INTRICATE NEURAL NETWORKS.
IF YOU CHANGE ONE PIECE OF IT,
IT RIPPLES THROUGH THE WHOLE
SUPPLY CHANGE.
THEY WILL TAKE YEARS TO CHANGE.
THEY WILL BE PERMANENT CHANGES.
THERE IS NO WAY APPLE WILL HAVE
THE SAME DEPENDENCY ON ONE
COUNTRY GOING FORWARD JUST LIKE
CHINA IS NOT BEING DEPENDENT ON
U.S. SOYBEAN PRODUCERS THE WAY
THEY HAVE.
NEIL: I'M GOING A LITTLE OVER
TIME HERE, BUT CHINA HAS BEEN A
BEACON FOR A LOT OF BUSINESSES,
CHEAP LABOR.
IT IS NOT AS CHEAP NOW.
AS IT GROWS, BECOMES A ECONOMIC
POWERHOUSE IT HAS IT IS LOSE OUT
TO CHEAPER PRODUCTION RIVALS
AROUND THEIR NEIGHBORHOOD.
WHATEVER HAPPENS ON TRADE FRONT,
DOES CHINA HAVE TO WORRY ABOUT
POST-TRADE ISSUES THAT ARE
BIGGER THAN TRADE, MUCH MORE
THAN WE DO?
>> I THINK THE PART THAT WE'RE
MISS SOMETHING THAT CHINA IS
MOVING FROM BEING A LOW COST
SUPPLIER OF MANUFACTURING
PRODUCTS TO A CONSUMER.
A FINISHED PRODUCT IS REALLY,
THAT IS THE PRIZE.
IT IS NOT INDIVIDUAL COMPONENT.
THAT IS WHY I'M SAYING CHINA
WILL CERTAINLY TRADE LOW SKILLED
MANUFACTURING JOBS AS A RESULT
OF THIS TRADE WAR.
WHAT IS REALLY GOING TO HAPPEN,
WHAT WE NEED TO FOCUS ON WHAT IS
GOING TO HAPPEN TO FINISHED
GOODS PRODUCTS IN CHINA.
I'M TALKING ABOUT THINGS LIKE
HUAWEI IN TERMS OF THEIR
FINISHED PRODUCT SALES TO CHINA.
NEIL: DAVE DOTSON, I CANNOT
IMAGINE BEING ONE OF YOUR
STUDENTS.