One of President Trump’s platform planks was bringing jobs back to America for US manufacturing. As part of his ‘Make American Great Again’ campaign, President Trump has referenced international trade situations he viewed as not in the best interest of the United States: The North American Free Trade Agreement (NAFTA), our trade deficit with China, anti-dumping and countervailing, the World Trade Organization (WTO), and other situations in which he believes America is being taken advantage of.
While these sentiments have a high approval rating by politicians and working-class citizens throughout our country, and though there may be terms and conditions within some of these agreements that need review, the realities of making many of the commonly used, high volume products through US manufacturing vs. offshore are far more complex than just “bringing them over to the USA”.
COMPANY FACTS to Consider
Let’s take the iPhone for example, obviously an extremely popular product. President Trump wanted Apple to manufacture iPhones in the USA, a worthy goal. On the surface it sounded good. Why not manufacture the iPhone in the country where it was invented? Good question. Let’s examine some of the reasons why this, as Steve Jobs told former President Obama, could not happen with US manufacturing.
First, let’s define our terms. The iPhone is technically not “Made” in China it’s “Assembled” in China (check the box). There’s a big difference between the two terms (See our blog entitled “Made vs. Assembled in America” March 31st). Being assembled in China means the iPhone’s components are from various parts of the world: Memory chips from Korea and Austin, TX; and displays from Japan, glass and radio frequency parts by US manufacturing, and other components from Europe, etc. The assembly is actually performed by a Taiwanese company in China.
Interestingly, Apple has 766 suppliers for their iPhone, iPad, and MAC devices. 69 of those 766 are in the USA. Another study from an Apple assembler attempted to estimate the cost to move production to the States. Foxconn estimated that prices would have to rise by more than 200%. Another study by MIT put the additional cost to assemble the iPhone between $4-$10…which is the actual cost increase at the factory, not the retail increase. There are other studies with different numbers, but the bottom line in most of these studies is that one of the main reasons the iPhone is not manufactured in the US is because it’s not based just on the price of labor alone – it’s the economics of scale in human resources and the required increased capacities of US manufacturing facilities. According to one report, the factory where most iPhones reach final assembly employees 230,000 people. That’s almost 3% of the population of New York. That would mean about 3 out of every 100 people in New York would be assembling the iPhone as their job. That’s one factory.
RAW MATERIALS to Consider
Another reason the iPhone price would be more expensive if it were considered for US manufacturing is the increased cost of shipping component parts and resources to America, rather than the finished product. Many of the resources required to make an iPhone aren’t available in the US. For instance, China produces 85 percent of the world’s rare earth elements and, as a result, China manufacturing requiring these minerals, such as the iPhone, is more plentiful there. Interesting to note is that while the US currently imports most rare earth minerals from China, there have been recent developments that might allow the US to produce its own supply of rare earth minerals.
AUTOMATION to Consider
Currently, only 69 of Apple’s 766 suppliers are located within the continental United States. It’s true that about half of the remaining 697 are in China. What is interesting is that these suppliers do not necessarily create many jobs. Even though these components are technically “Made in China”, the required components are often produced in highly automated factories. As such, moving full production back to US manufacturing would not only create very few jobs, it would have the undesirable effect of drastically increasing the costs; therefore, raising the retail price.
ITI Manufacturing is an American-owned company based in the US, with a staff of full-time, dedicated professionals that work face-to-face with factories daily, to assure your product is manufactured, tested, and inspected to your specifications. When (not if) issues come up, our people are there, face-to-face, to solve the issue quickly and professionally. Our systems have been developed to the point we guarantee no manufacturing defects.
If your company needs a component or product that has become too expensive for US manufacturing, if you have a new product and want to know how much it would cost to manufacture in China, or if you’re currently manufacturing in China and having a tough time of it, speak with our experts today. ITI Manufacturing has the expertise and experience to solve these issues. We also offer our Offshore Supply Chain Management service to companies that have entrenched offshore manufacturing, and need professional help to manage the process.
ITI Manufacturing – making it in Asia for our customers for over 40 years. Call us now at (281) 242-7030
