I want to transfer files between two late 2016 MacBook Pros. I have a USB-C data cable from my external USB-C hard drive.
Can I connect the Macs using that USB-C data cable to transfer files? Or do I need to put one of the Macs in target disk mode?
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You needs to put one of the computer in Target Disk Mode (Press T on startup) and connect another USB-C equipped Mac with a USB-C cable (or USB-C to USB Adapter/Cable for older computer) Note that the USB-C cable that come with your MacBook Pro 2016 does not work.
There are a more complicated method (and this requires a Thunderbolt 3 Cable (or use a Thunderbolt 3 to Thunderbolt 2 Adapter and a Thunderbolt 2 Cable for older computers) and both computer have to be a Mac that support Thunderbolt. But this does not requires Target Disk Mode. Connect both Macs with the Thunderbolt cable (or with the adapter) and go to System Preferences > Network on both Mac. Go to Thunderbolt bridge (add one if it doesn't exist) and there set configure IPv4 to manually on both. Now set Subnet Mask on both to 255.255.255.0, now give two IPs to both computer (i.e. 192.168.2.1 and 192.168.2.2). Now you can use File Sharing (and other shadings) with the two Macs by Thunderbolt when you use the IP address.