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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 'labo
by 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.
- frandroid 6y ago> 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.
- philwelch 6y agoI 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.
- the-dude 6y agoI feel like you are missing the point about Germany a bit. Vocational and apprenticeships are still a thing there.
- philwelch 6y agoI’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.
- jsjohnst 6y ago> 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.
- ericmay 6y ago> 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.
- philwelch 6y agoWho 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?
- tedd4u 6y agoThanks 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?
- jariel 6y agoShipping 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.