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Early on it was due to price, and the main contribution from China was in low cost final assembly work. For the first half dozen or so iPhones about a third to half of the value of the device, including for several models the CPU (Samsung plant in Texas) and Gorilla Glass (Corning in NY), was in components actually manufactured in the USA. The cost of final assembly in China was only a few dollars per device. These variables have changed though as Chinese manufacturing technology and skills have steadily climbed up the value scale.

This is a misrepresentation though.

First - cheap labour is still a huge part of the value. Point blank. I quote from China and you can see literally the 'labour' input on the spreadsheet, and on that basis alone, it's still very competitive vis-a-vis the West.

Second - the reason 'all those skills' exist there, and not here, is because of the wages and conditions. They do all those things at far less than 1/2 price than they do here. That's a big deal. And for the most part, they are effectively commodities.

If Apple et. al. wanted to pay 'American wages' for most of that activity, then major clusters of those skills would develop here.

Very importantly, there is the 'trade asymmetry' in that China has trade barriers, the US largely does not.

It would be 'good' if both economies kind of opened up, but it's like a 'prisoner's dilemma strategy game' in that, it's even better if you get your opponent to 'open up' while you 'remain closed'.

The US has lost dramatically by allowing China on the same WTO terms, and all the other shenanigans. The US should really simply implement 'tit for tat' trade policies such as requiring Chinese companies give up their IP in the US while the US hands to a strategic competitor, not allow them to have >50% ownership of anything, put up indirect barriers, the US Treasure could direct major US banks to subsidise Cisco's customers for export, yada, yada. It seems dramatic, but that's what China is doing.

Finally, though we think of a lot of this as 'high tech' ... a lot of it is not. We don't worry too much about China making tons of 'plastic stuff' because we believe it's 'low value' - but as certain kinds of screens, disk drives etc. become truly commoditised, well, in some ways, it's a lot like assembling plastic toys, and the surpluses go to the buyers, not the makers.

Edit: I'm working on a project where our factory price in quantity is $60 here, will be in $20 in China and overall, it all boils down to labour input costs and overhead through the value chain (i.e. N. American manufacturer pays more for Internet, largely due to labour, those costs get passed on). In the end, it's not the price of the materials, it's the layers of services by humans on top.

> If Apple et. al. wanted to pay 'American wages' for most of that activity, then major clusters of those skills would develop here.

They would, but you're still talking about a 10-20 year gap. First for masses of people to get the adequate education, apprenticeships, get good at their jobs, and then for these people to mentor the second cohort 8-12 years later to get the kind of volume China and Germany have.

I feel like “and Germany” gives it away.

Germany, Japan, Taiwan, and South Korea are all developed countries that don’t have “cheap labor” anymore. They found and are holding their niches. Even in terms of “cheap labor”, China’s losing out to places like Bangladesh. A lot of these excuses for why America can’t compete in manufacturing sound like sour grapes to me.

I feel like you are missing the point about Germany a bit.

Vocational and apprenticeships are still a thing there.

I’m not missing the point. That is the point. The US wasn’t undercut by countries with cheaper labor; we just stopped caring about making things because our business, educational, political, and social culture all devalue it.

> Vocational and apprenticeships are still a thing there.

Exactly. But it’s the “American dream” to send their kids to college, even if that’s the completely inappropriate thing to do for that child’s future prospects.

> They would, but you're still talking about a 10-20 year gap.

Sure. That’s ok. It’ll take time to see a return on investment. I don’t see this “but X” as a counterpoint or really an issue at all.

Who exactly is going to make these investments and can afford to wait 20 years to see any return on them? Why would such an investment be made when more competent countries already have the capacities needed today, not twenty years from now?

Well, there's a lot of nuance here so I'll speak quite generally in that the United States could certainly afford to wait 20 years to see a return on investment (we do this with many, many programs and policies even today - NASA for example, food stamps, education) and I'd also argue that a country to the extent possible would tend toward valuing the ability to produce goods in the event that the supply lines of goods being imported is shut off.

Further, you could make investments now that exceed current capacities and capabilities today with an eye to the future.

I want to clarify that I’m 100% in favor of such a policy, in principle. It’s the implementation that’s hard.

Actually the US does a lot of good manufacturing in some fields, like arms. But in other fields, well-intentioned protectionist policies like have backfired. For instance, rather than subsidizing US shipyards, the Jones Act protects them from foreign competition which has led them to significant decline over the past century.

US policy to rebuild or improve US industry has a very mixed history in terms of results. It probably doesn’t help that a lot of these efforts are focused on bailing out the same old manufacturers over and over again to save jobs in battleground states.

Those jobs are not really coming back, there are too many specialised things in China.

And then you have the 'raw labour' - you still need factories with workers making very little, treated like crap.

The bottom 10% of Americans will not do that. For what it's worth.

Now - there is the possibility for 'full automation'. Sony Playstation in made in Japan by this amazingly automated assembly line.

America could feasibly do this if they wanted for some things, but it will take innovation.

The revolution will be: a 'pair of hands'.

When robotics and AI becomes sophisticated enough that you can buy a 'pair of robot hands' for $100K and very easily train them to do 'anything' ... then this will enable automation in rich countries and it could really damage the entire developing world economies.

> And then you have the 'raw labour' - you still need factories with workers making very little, treated like crap.

> The bottom 10% of Americans will not do that. For what it's worth.

OR you need to find other ways to bolster margins without skimping on labor costs at the bottom end. Intelligent cuts to C-Suite pay and golden parachutes could easy pay for thousands of workers at a living wage at the bottom of any company.

The top 10% of Americans will not do that. For what it's worth.

The 10th percentile in America is not earning that-that much.

Nothing will make up for the low wages in China.

America could push up minimum wage some, but it won't change the dynamics of export/import.

The Top 1% alone is making more than enough in earnings. The fact that billionaires exist at all is proof enough that far more money exists that could be spent on living wages at the bottom end than currently ever is. Whether or not the rest of the Top 10% contributes nearly as much to labor costs disparity as the Top 1% is mostly academic at that point, especially if all it does is serve to prop up the Top 1%, which is more than fitting for a terse reply in the pattern of the poster before me.

> Nothing will make up for the low wages in China.

China's wages aren't even that low anymore. Maybe you are thinking of Bangladesh or somewhere that China is now themselves outsourcing "cheap labor" to?

> America could push up minimum wage some, but it won't change the dynamics of export/import.

Correct, it's not a labor cost issue at the end of the day. As I said, companies are more than capable of finding margins that work and still pay labor what it owes them. There's too many externalities companies are willing to, and legally allowed to, ignore that keep them from feeling any pressure or need to actually do so. The point I tried to make is that is not "low wages exist in China" keeping jobs outside of the US. That's a solvable problem with honest dealing with the labor market. Companies just have no interest to solve it.

(The labor market isn't a fair market, for what that is worth, and has almost no liquidity. Corporate structures impact the labor market a lot more than the labor market affects corporate structures, whether or not you agree that the modern American "gentry" are playing too selfish a game with the American labor market and getting away with it.)

"The Top 1% alone is making more than enough in earnings. The fact that billionaires exist at all is proof"

No, this is an ideological statement, not a factual statement.

The 'earnings' (not wealth) of Billionaires would not move the needle that much.

But even the wealth: if Jeff Bezos gave $100B up his wealth, it would be a one-time check to every American for $300. That's it. And just once.

Take up all the billionaires and it wouldn't amount to much for Americans, and it would be shortlived.

"China's wages aren't even that low anymore."

Yes, they absolutely are. To the point wherein there is absolutely no way for America to compete with them on a wage-basis.

"Correct, it's not a labor cost issue at the end of the day."

Yes, it is a labour cost, you're misinterpreting my point. Nothing America can do will make the US competitive with China for things involving labour.

" As I said, companies are more than capable of finding margins that work and still pay labor what it owes them."

This is just fantasy business math. There is no 'finding margins'. There is 'increasing prices' or 'lowering costs'. So either they pay suppliers less, or increase prices in order to pay greater salaries.

And 'owes them' - is again, just made up. How much does Starbucks' 'owe' it's Baristas? What you say they owe? What the market will bear? Minimum wage?

"The labor market isn't a fair market, for what that is worth, and has almost no liquidity"

The term 'liquid' is generally not used for labour markets, you might mean to say 'fungibility'?

The US could afford to pay better minimum wages and probably better for the lower 1/3 - but again, it won't change what's happening vis-a-vis China.

> if Jeff Bezos gave $100B up his wealth, it would be a one-time check to every American for $300. That's it. And just once.

Yet we aren't talking about "every American", we are talking about increasing the labor force, so your math isn't that relevant. Instead, let's say that Amazon required Bezos to put that $100B back into wages for low level employees for ten years: $10B/year works out to as many as 320,512 people employed at a $15/hour full time job minimum wage for those 10 years.

You are correct that I suggested wealth rather than earnings because of course most of the wealthy play shell games with their incomes that launder as much as possible of their income into other things that aren't "earnings" on paper (because one is taxed much higher than most of the "capital gains" taxed sorts of passive incomes). I mentioned golden parachutes, I was not trying to hide that wealth is a bigger component of the debate than just "earnings".

That said, even Bezos' over-the-table non-stock "earnings" are still nearly 3x a $15 minimum wage earner.

All of the above is mathematically true, so easier to consider "facts" just as much as yours. No ideological statements there. I could bring out some actual ideological statements if you wish what those really look like.

> This is just fantasy business math. There is no 'finding margins'. There is 'increasing prices' or 'lowering costs'. So either they pay suppliers less, or increase prices in order to pay greater salaries.

I agree, it is fantasy business math, but it is fantasy business math that is the current language of the MBA and Wall Street folks managing this mess. I did not invent it, and I would use more direct language if it were weren't readily apparent this is the preferred language of those currently propping up the established system.

> And 'owes them' - is again, just made up.

By that logic, all of capitalism is made up. All of human history is made up.

Even setting aside the deeper ethical questions about what an honest society owes to its labor class, I did explicitly define it in that context as capable of meeting the requirements to move those jobs back to the US, which in this case would specifically mean "US minimum wage" as the law of the land people keep claiming makes US noncompetitive with China, and you are just needlessly splitting hairs here.

(To be fair, I'm happy to continue splitting hairs, as I did use "owe" to evoke both the indebtedness meaning as well as the philosophical one as well. But it was well defined in context.)

Thanks for the post. If (as I assume) China is not the primary market for your product, how much of the final price is determined by shipping from China to intermediate warehousing locations or to customers? i.e. if you were to manufacture in the market you're selling and save the bunker fuel costs (again - assumptions) of transporting in containers from China, how much does that offset increased labor cost?

Shipping small items in quantities surface is cheap.

The issue with China now is 25% Trump Tax, which is huge. For less sophisticated goods, Malaysia, Vietnam, etc. are becoming options.

I find his comments on vocational education particularly telling since he's part of the political elites that have been deriding vocational education and promoting "higher education" that is more indoctrination oriented vs. actually educating.

I wouldn't be surprised if Apple being a major contributor in propping up China for so long before taking action (like their recent diversifications to India and Brazil for manufacturing) is going to be a stain on his legacy long term.

>he's part of the political elites that have been deriding vocational education

What does that mean? Are you talking about opinions he has expressed, or are you just saying he's responsible for the opinions of other people you associate him with?