A group of researchers are asserting that onshoring low-cost manufactured goods back from China would not solve the US’s current economic woes.
The cost of an Apple iPad, they point out, includes about $10 for the workers who assemble it (and that may actually be high, from what I’ve heard). Meanwhile, each device sold helps maintain thousands of higher-paying design, software, management and marketing jobs.
OK, that’s all believable. But it’s the next part is harder to stomach. “Without China, Apple couldn’t be so successful and Apple products wouldn’t be so affordable,” said Yao Shujie, professor of economics at the University of Nottingham in England.
Not so fast. Apple’s margins are by far the highest in the industry. With lower margins, Apple might not be so profitable, but the affordability (an Apple comes at a premium for no other reason than consumers are willing to pay it) is a whole different bag of potatoes. Apple could pay a significantly higher price for onshore EMS work, yet given the fairly low labor content of an electronics assembly, could do so with no effect to the end-product price.
And it says here, those design, software, management and marketing jobs would exist regardless of where the product is manufactured.
Furthermore, the researchers extrapolate from this the idea that the effects a big change in the price of the yuan would have on US manufacturing would be fairly limited in scope. “Multinational firms that think currency appreciation is going to have a big effect on their export capacity from China to the United States are going to shift to other countries, not to the United States,” one researcher said.
Good point. But I would counter that the monies pouring from US consumers into Chinese hands serve to boost the latter’s national coffers, from which its military is deriving great benefit. Cuts in purchases of Chinese-made goods would help reduce China’s ability to assert itself militarily around the world. That would be a positive, too.
Should the US wean itself from its Chinese teat, the benefits would be seen in multiple, if somewhat less obvious, ways.