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The converse of this is that protective trade policies have a cost. If the US government is going to protect its native semiconductor industry, it will be shiel

The converse of this is that protective trade policies have a cost. If the US government is going to protect its native semiconductor industry, it will be shielding inferior engineering from competition, doing so at the expense of US consumers and taxpayers.

sterlind 6y ago
The standard of living keeps going up in China. Why is it that they haven't needed to outsource to countries with cheaper labor to stay price competitive themselves? Or will that happen, just further down the line?
- toyg 6y ago
  They have massive reserves of cheap labor and cheap space that are still far from being exhausted. Some wage inflation has been observed, but we are still decades away from Chinese companies being forced to delocalize to compete.
- Animats 6y ago
  That's happening. The T-shirt industry moved to Bangladesh.
  - reaperducer 6y ago
    Yep. Lots of clothing and other manufacturing has moved westward (geographically) from China. A chunk of it seems to be landing in Africa these days, and Africa is gearing up hoping to to be the world's new manufacturing go-to.
  - perl4ever 6y ago
    I got a Kawasaki motorcycle around 2009 that was built in Thailand. Then again, the steering head came loose after I'd ridden it for a little while...
- tonyedgecombe 6y ago
  Is labour a big proportion of their costs? I was under the impression that modern foundries are highly automated.
- shantara 6y ago
  Chinese government acknowledges outsourcing to countries with cheaper labor as a threat, and works on combating it. For example, their "Made in China 2025" plan is centered around establishing China as the global technological leader in a number of high-tech industries and a source of skilled labor, not as the world's cheapest manufacturing plant it was a just few years ago. It still remains to be seen how successful they would be, but at least they recognize this situation as a problem in nearest future.
  - TimTheTinker 6y ago
    > Chinese government acknowledges outsourcing to countries with cheaper labor as a threat I wish the US had seen this with equal clarity 30 years ago. Step 2 is to steadily increase prices once they have a manufacturing monopoly, and impose tariffs on imports.
    - seanmcdirmid 6y ago
      That boat had already mostly sailed 30 years ago. We have to go back to the 60s or 70s to change course, and the use of outsourcing created a lot of wealth for the USA, I do think we should have done it differently.
      - jjoonathan 6y ago
        It created a lot of wealth for some in the USA. It destroyed a lot of wealth for others in the USA.
        seanmcdirmid 6y ago
        Yes, but that is true of any advancement. In the long run, it just means we should have stopped devoting jobs to low level manufacturing and changed to higher level ones (e.g. software).
      - aphextron 6y ago
        >the use of outsourcing created a lot of wealth for the USA More like it transferred that wealth to the managerial class, while the US worker is flipping burgers for minimum wage now.
- api 6y ago
  They are starting to outsource to India and Africa. Other international corporations are eyeing those too. Some kind of African union is in the works, which if it helps further stabilize the region politically will make it more attractive. Historically political corruption has kept industry away from Africa.
  - pantaloony 6y ago
    It’s gonna be weird when there’s no cheap labor left and even the American middle class can’t afford anything that wasn’t 100% machine-made, anymore.
    - imtringued 6y ago
      Once there is no cheap labor left we will see an incredible amount of consumer inflation because prices need to rise to accommodate higher wages.
      - api 6y ago
        I think this is eventually inevitable. After India (which is only marginally cheaper than China) Africa is the largest reservoir of potential cheap labor. When that's started to experience wage inflation there will be nowhere else to go except automation, and automation is generally oversold and is a lot harder than it seems. It's easy to automate the most repetitive 10-20% of an industrial process, but exponentially harder and/or lower margin as you move down the long tail. Most people aren't aware of just how much of the stuff they buy is still made by hand.
    - yxhuvud 6y ago
      Why do you think wages wouldn't rise as well in that case?
- philwelch 6y ago
  With electronics, at least, outsourcing to China is no longer done because of "cheaper labor", if that was ever the reason to start with. It's because they do a better job of it. Tim Cook: > There's a confusion about China. The popular conception is that companies come to China because of low labor cost. I'm not sure what part of China they go to, but the truth is China stopped being the low-labor-cost country many years ago. And that is not the reason to come to China from a supply point of view. The reason is because of the skill, and the quantity of skill in one location and the type of skill it is. > The products we do require really advanced tooling, and the precision that you have to have, the tooling and working with the materials that we do are state of the art. And the tooling skill is very deep here. In the U.S., you could have a meeting of tooling engineers and I'm not sure we could fill the room. In China, you could fill multiple football fields. > The vocational expertise is very very deep here, and I give the education system a lot of credit for continuing to push on that even when others were de-emphasizing vocational. Now I think many countries in the world have woke up and said this is a key thing and we've got to correct that. China called that right from the beginning. Source: https://www.inc.com/glenn-leibowitz/apple-ceo-tim-cook-this-is-number-1-reason-we-make-iphones-in-china-its-not-what-you-think.html https://www.inc.com/glenn-leibowitz/apple-ceo-tim-cook-this-...
  - simonh 6y ago
    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.
  - jariel 6y ago
    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.
- resters 6y ago
  If we took this to the logical conclusion, nobody in the US would be able to afford faster CPUs because of the high price of domestically manufactured textiles and vegetables harvested with domestic labor.
- heavyset_go 6y ago
  They do outsource to SE Asia and India. There is also a prison population that is compelled to work for free or barely any pay.
- ctdonath 6y ago
  It will happen, just further down the line. I watched the same thing happen to Japan way back.
- philjohn 6y ago
  China is a big country - could it be possible that while some people are indeed seeing an increase in their standard, whilst other areas are still in relative, if not absolute, poverty? We've all read the stories about Foxconn and some of the conditions endured by people working there.
  - ardy42 6y ago
    > China is a big country - could it be possible that while some people are indeed seeing an increase in their standard, whilst other areas are still in relative, if not absolute, poverty? This is absolutely the case, and you don't even necessarily need to look to "other [geographic] areas" to find them.
- namelosw 6y ago
  It's remain to be seen. But one important factor why China is ruling this industry right now is not only because the cheap labor, but also the massive supply chain. If you're prototyping some electronic hardware, you're in Huaqiangbei, Shenzhen, you can probably go there and find all the parts you want in one hour. It's extremely slow and expensive for other places to do the same in the world compared to there. And it still holds true for other parts in China (where many of them with even same quality of labor but cheaper).
- tharne 6y ago
  They have. Chinese factories have already lost business in the lower-end of the value chain to places like Vietnam. It's only just started, but the Chinese aren't immune from the basic laws of economics.
- fnord123 6y ago
  Foxconn is moving some manufacturing to India. https://www.reuters.com/article/us-foxconn-india-apple-exclusive-idUSKBN24B2GH https://www.reuters.com/article/us-foxconn-india-apple-exclu...
ardy42 6y ago
> The converse of this is that protective trade policies have a cost. If the US government is going to protect its native semiconductor industry, it will be shielding inferior engineering from competition, doing so at the expense of US consumers and taxpayers. Protective trade polices have a costs, but free trade polices have costs too--they're just different ones.

sterlind 6y ago

The standard of living keeps going up in China. Why is it that they haven't needed to outsource to countries with cheaper labor to stay price competitive themselves? Or will that happen, just further down the line?

toyg 6y ago
They have massive reserves of cheap labor and cheap space that are still far from being exhausted. Some wage inflation has been observed, but we are still decades away from Chinese companies being forced to delocalize to compete.
Animats 6y ago
That's happening. The T-shirt industry moved to Bangladesh.
- reaperducer 6y ago
  Yep. Lots of clothing and other manufacturing has moved westward (geographically) from China. A chunk of it seems to be landing in Africa these days, and Africa is gearing up hoping to to be the world's new manufacturing go-to.
- perl4ever 6y ago
  I got a Kawasaki motorcycle around 2009 that was built in Thailand. Then again, the steering head came loose after I'd ridden it for a little while...
tonyedgecombe 6y ago
Is labour a big proportion of their costs? I was under the impression that modern foundries are highly automated.
shantara 6y ago
Chinese government acknowledges outsourcing to countries with cheaper labor as a threat, and works on combating it. For example, their "Made in China 2025" plan is centered around establishing China as the global technological leader in a number of high-tech industries and a source of skilled labor, not as the world's cheapest manufacturing plant it was a just few years ago. It still remains to be seen how successful they would be, but at least they recognize this situation as a problem in nearest future.
- TimTheTinker 6y ago
  > Chinese government acknowledges outsourcing to countries with cheaper labor as a threat I wish the US had seen this with equal clarity 30 years ago. Step 2 is to steadily increase prices once they have a manufacturing monopoly, and impose tariffs on imports.
  - seanmcdirmid 6y ago
    That boat had already mostly sailed 30 years ago. We have to go back to the 60s or 70s to change course, and the use of outsourcing created a lot of wealth for the USA, I do think we should have done it differently.
    - jjoonathan 6y ago
      It created a lot of wealth for some in the USA. It destroyed a lot of wealth for others in the USA.
      - seanmcdirmid 6y ago
        Yes, but that is true of any advancement. In the long run, it just means we should have stopped devoting jobs to low level manufacturing and changed to higher level ones (e.g. software).
    - aphextron 6y ago
      >the use of outsourcing created a lot of wealth for the USA More like it transferred that wealth to the managerial class, while the US worker is flipping burgers for minimum wage now.
api 6y ago
They are starting to outsource to India and Africa. Other international corporations are eyeing those too. Some kind of African union is in the works, which if it helps further stabilize the region politically will make it more attractive. Historically political corruption has kept industry away from Africa.
- pantaloony 6y ago
  It’s gonna be weird when there’s no cheap labor left and even the American middle class can’t afford anything that wasn’t 100% machine-made, anymore.
  - imtringued 6y ago
    Once there is no cheap labor left we will see an incredible amount of consumer inflation because prices need to rise to accommodate higher wages.
    - api 6y ago
      I think this is eventually inevitable. After India (which is only marginally cheaper than China) Africa is the largest reservoir of potential cheap labor. When that's started to experience wage inflation there will be nowhere else to go except automation, and automation is generally oversold and is a lot harder than it seems. It's easy to automate the most repetitive 10-20% of an industrial process, but exponentially harder and/or lower margin as you move down the long tail. Most people aren't aware of just how much of the stuff they buy is still made by hand.
  - yxhuvud 6y ago
    Why do you think wages wouldn't rise as well in that case?
philwelch 6y ago
With electronics, at least, outsourcing to China is no longer done because of "cheaper labor", if that was ever the reason to start with. It's because they do a better job of it. Tim Cook: > There's a confusion about China. The popular conception is that companies come to China because of low labor cost. I'm not sure what part of China they go to, but the truth is China stopped being the low-labor-cost country many years ago. And that is not the reason to come to China from a supply point of view. The reason is because of the skill, and the quantity of skill in one location and the type of skill it is. > The products we do require really advanced tooling, and the precision that you have to have, the tooling and working with the materials that we do are state of the art. And the tooling skill is very deep here. In the U.S., you could have a meeting of tooling engineers and I'm not sure we could fill the room. In China, you could fill multiple football fields. > The vocational expertise is very very deep here, and I give the education system a lot of credit for continuing to push on that even when others were de-emphasizing vocational. Now I think many countries in the world have woke up and said this is a key thing and we've got to correct that. China called that right from the beginning. Source: https://www.inc.com/glenn-leibowitz/apple-ceo-tim-cook-this-is-number-1-reason-we-make-iphones-in-china-its-not-what-you-think.html https://www.inc.com/glenn-leibowitz/apple-ceo-tim-cook-this-...
- simonh 6y ago
  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.
- jariel 6y ago
  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.
resters 6y ago
If we took this to the logical conclusion, nobody in the US would be able to afford faster CPUs because of the high price of domestically manufactured textiles and vegetables harvested with domestic labor.
heavyset_go 6y ago
They do outsource to SE Asia and India. There is also a prison population that is compelled to work for free or barely any pay.
ctdonath 6y ago
It will happen, just further down the line. I watched the same thing happen to Japan way back.
philjohn 6y ago
China is a big country - could it be possible that while some people are indeed seeing an increase in their standard, whilst other areas are still in relative, if not absolute, poverty? We've all read the stories about Foxconn and some of the conditions endured by people working there.
- ardy42 6y ago
  > China is a big country - could it be possible that while some people are indeed seeing an increase in their standard, whilst other areas are still in relative, if not absolute, poverty? This is absolutely the case, and you don't even necessarily need to look to "other [geographic] areas" to find them.
namelosw 6y ago
It's remain to be seen. But one important factor why China is ruling this industry right now is not only because the cheap labor, but also the massive supply chain. If you're prototyping some electronic hardware, you're in Huaqiangbei, Shenzhen, you can probably go there and find all the parts you want in one hour. It's extremely slow and expensive for other places to do the same in the world compared to there. And it still holds true for other parts in China (where many of them with even same quality of labor but cheaper).
tharne 6y ago
They have. Chinese factories have already lost business in the lower-end of the value chain to places like Vietnam. It's only just started, but the Chinese aren't immune from the basic laws of economics.
fnord123 6y ago
Foxconn is moving some manufacturing to India. https://www.reuters.com/article/us-foxconn-india-apple-exclusive-idUSKBN24B2GH https://www.reuters.com/article/us-foxconn-india-apple-exclu...

ardy42 6y ago

> The converse of this is that protective trade policies have a cost. If the US government is going to protect its native semiconductor industry, it will be shielding inferior engineering from competition, doing so at the expense of US consumers and taxpayers. Protective trade polices have a costs, but free trade polices have costs too--they're just different ones.