I believe he's suggesting that if America can demand the source+signing keys and get away with it, then so can the Chinese government.

Now the Chinese and every other country in the world can prepare and sign updates to most anyones iPhone, say the FBI directors iPhone.. Heck, if he's travelling in China it would likely even be trivial to push the update over the air to his phone...

I thought it was pretty standard operating procedure to use throwaway phones & computers if you're travelling to China and there's any concern about espionage, whether it's corporate or political.

I think his point is that, if the FBI gains this ability, foreign governments will ban iPhone use which will damage an American company.

That too, but also all foreign governments will have predecent for demanding the same capabilities. Apple might as well just strip out all security features if that occurs instead of wasting time catering to demands.

Thanks for clarifying everyone.

The larger point is, if "secure" devices are illegal in the US, who is going to make them and what are they going to cost? The FBI/CIA/NSA/DOJ/etc all use mobile phones, tablets, and computers. Will all of these government agencies be using special devices built only for them, perhaps by another government agency?

The FBI having the ability to break in to NSA or DOJ machines is definitely not ok and I'm not sure anyone is going to say otherwise besides the FBI. Hell, we can't even trust the FBI agents with a few bitcoins.