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U.S.-China tensions are growing and that could be a problem for Apple

MICHEL MARTIN, HOST:

Apple is the world's most valuable tech company, in large part because of China. Now Apple is reckoning with its dependence on China. NPR tech reporter Bobby Allyn examines what's at stake.

BOBBY ALLYN, BYLINE: In the late 1990s, Apple was in trouble. Microsoft and IBM were doing laps around the company. It was having a really hard time competing with PCs, which were cheaper and quickly becoming the de facto computer in offices and households. Here's former Apple CEO Steve Jobs recalling this period in a 2010 interview.

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STEVE JOBS: Well, Apple was about 90 days away from going bankrupt back then in the early days, and it was much worse than I thought.

ALLYN: Apple's turnaround had many factors - Steve Jobs, the introduction of products like the iPod and, very importantly, China. The country had a massive, low-wage labor force and had developed manufacturing and engineering expertise. In 2001, Apple brokered a partnership with China. The government poured billions of dollars into new infrastructure for Apple - building factories, paving new roads, constructing housing for Apple workers. Kate Whitehead helped oversee Apple's operations in China.

KATE WHITEHEAD: I was around when they called up the local city and asked them to build another airport because we needed a larger airport to ship out more goods.

ALLYN: That's right. If Apple needed another airport in China, it happened and it happened fast. Doug Guthrie is another former Apple employee who focused on China. He says China set up industrial clusters where little components for Apple products were made and then quickly moved to a final assembly plant run by the company Foxconn. Apple engineers were embedded there to keep an eye on quality control.

DOUG GUTHRIE: If you knew how to navigate that market really well, which Tim Cook and Apple did, you could really find the best partner who would make the best component for the cheapest price. And that was sort of the brilliance of the system.

ALLYN: But now the brilliance of the system in China has come to represent something else to Apple - a huge risk. As geopolitical tensions rise over issues including spying, the suppression of human rights and the country's threats against Taiwan, Apple is worried about its footprint in China. Apple declined to comment to NPR. And CEO Tim Cook tends to give vague answers when he's challenged about China's human rights record like he does here in a 2020 interview with The Atlantic.

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TIM COOK: When I look at China, I see a significant number of users that love Apple product, and I want to serve them. And we believe everybody should be treated with dignity and respect. It's sort of our basic belief as a company.

ALLYN: The pressure on Cook really heated up at the height of COVID lockdowns in China. Inside the sprawling industrial campus known as iPhone City, which spreads across two square miles, protesting workers clashed with riot police over stringent lockdown conditions.

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UNIDENTIFIED PERSON: (Non-English language spoken).

ALLYN: This was a problem for Apple, but it didn't have a backup plan. That's according to Jeff Fieldhack. He's with the firm Counterpoint Research.

JEFF FIELDHACK: Apple lost about a billion dollars a week from devices not being manufactured, shipped and hitting stores across the globe.

ALLYN: Fieldhack says when there are factory disruptions in China, it reverberates. And that's because...

FIELDHACK: Today, we estimate 93% of iPhones are built in China.

ALLYN: Apple is trying to set up shop elsewhere. It's now making a small percentage of iPhones in India, and it's making AirPods in Vietnam. But up and leaving China is not going to happen anytime soon. Former Apple operations manager Whitehead says China's extraordinary support of the Silicon Valley giant turned around its fortunes and made it a global success. But she says Apple may have gotten addicted.

WHITEHEAD: It was a smart move by the government to encourage this growth, but it became, like, a little bit like a drug.

ALLYN: A drug that Apple is unlikely to kick anytime soon.

Bobby Allyn, NPR News. Transcript provided by NPR, Copyright NPR.