Discount Merchandise or American Jobs? Pick Only One
The Wall Street Journal is reporting that Tim Cook is defending the globalization of Apple.
I’ve written about this before and as unpopular as it may be, Tim Cook is right.
Freight Is the New Labor: Why Apple Manufactures in China
I’ve written about this before and as unpopular as it may be, Tim Cook is right.
Freight Is the New Labor: Why Apple Manufactures in China
Globalization is the natural evolution for most companies when you want to compete on the world stage. Apple doesn’t have too much choice when it comes to where they manufacture their iPhones because they are getting pressure on multiple fronts. Freight costs, supply-chain lead times, and labor availability each on their own would be formidable challenges to overcome. Combined? There’s no way iPhone production would ever come to the US in large numbers.
Apple could do it in small numbers just as a political move to gain something else they really want. A small presence in the United States would limit their exposure to the increased freight and labor costs. But if they told Congress they’d do it in exchange for some favorable tax law changes, it would be a huge net win for Apple and politicians could claim victory.
The simple fact in manufacturing is that freight costs now outweigh labor costs for much of the manufacturing world. This is one of the consequences of automation. Labor is being displaced by capital depreciation, causing it to shrink as a percent of total cost. That means other variables like freight become more important.
iPhone production does benefit from lower labor costs in Asia, but it gets an even bigger boost from raw material freight costs due to being in the middle of their supply chain base. That’s the real reason iPhones aren’t made in Texas.
Even if an American company was staunchly against globalization, they would follow the same rationale when looking at which state to set up shop in. That’s why you don’t see a lot of new manufacturing in West Nebraska or the middle of Wyoming. If you’re an automaker, you either manufacture in the middle of the rust belt states of Michigan and Ohio or by the coast by seaport cities. Not because labor is cheaper. In fact it may be more scarce and expensive. But it’s quicker and cheaper to get your parts.
This trend is not new. We dealt with it at Gateway Computers when we finally relented and moved most of our operations to Asia. The company with the cow-spotted boxes meant to evoke visions of rolling Iowa farmland finally caved in. But the customer made that decision for us. When a made-in-America cow spotted box was placed on a shelf next to a made-in-Taiwan laptop which was $100 cheaper, consumers always picked the less expensive unit. They voted wholesale for made-in-Taiwan laptops, so that’s what we gave them.
I get so tired of hearing Americans saying that “big greedy corporations ship our jobs overseas.” No, the issue is that they go to Walmart and buy the cheapest possible option. Corporate America is forced to follow their lead. It would be just as accurate to say that “cheap consumers ship our jobs overseas.” One company, Gateway, even went as far as putting cow spots on their boxes so that you would know immediately it was made in the USA, but consumers still chose made-in-Taiwan. Discount merchandise or American jobs? Pick one, because you can’t have both.
Donald Trump needs to tread lightly in this area. Free trade is one issue that threatens to fracture his coalition. This is where conservative free-traders like myself and his new protectionist blue-collar Democrats are in stark disagreement.
Apple could do it in small numbers just as a political move to gain something else they really want. A small presence in the United States would limit their exposure to the increased freight and labor costs. But if they told Congress they’d do it in exchange for some favorable tax law changes, it would be a huge net win for Apple and politicians could claim victory.
The simple fact in manufacturing is that freight costs now outweigh labor costs for much of the manufacturing world. This is one of the consequences of automation. Labor is being displaced by capital depreciation, causing it to shrink as a percent of total cost. That means other variables like freight become more important.
iPhone production does benefit from lower labor costs in Asia, but it gets an even bigger boost from raw material freight costs due to being in the middle of their supply chain base. That’s the real reason iPhones aren’t made in Texas.
Even if an American company was staunchly against globalization, they would follow the same rationale when looking at which state to set up shop in. That’s why you don’t see a lot of new manufacturing in West Nebraska or the middle of Wyoming. If you’re an automaker, you either manufacture in the middle of the rust belt states of Michigan and Ohio or by the coast by seaport cities. Not because labor is cheaper. In fact it may be more scarce and expensive. But it’s quicker and cheaper to get your parts.
This trend is not new. We dealt with it at Gateway Computers when we finally relented and moved most of our operations to Asia. The company with the cow-spotted boxes meant to evoke visions of rolling Iowa farmland finally caved in. But the customer made that decision for us. When a made-in-America cow spotted box was placed on a shelf next to a made-in-Taiwan laptop which was $100 cheaper, consumers always picked the less expensive unit. They voted wholesale for made-in-Taiwan laptops, so that’s what we gave them.
I get so tired of hearing Americans saying that “big greedy corporations ship our jobs overseas.” No, the issue is that they go to Walmart and buy the cheapest possible option. Corporate America is forced to follow their lead. It would be just as accurate to say that “cheap consumers ship our jobs overseas.” One company, Gateway, even went as far as putting cow spots on their boxes so that you would know immediately it was made in the USA, but consumers still chose made-in-Taiwan. Discount merchandise or American jobs? Pick one, because you can’t have both.
Donald Trump needs to tread lightly in this area. Free trade is one issue that threatens to fracture his coalition. This is where conservative free-traders like myself and his new protectionist blue-collar Democrats are in stark disagreement.
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