Made in America?

I get paid to design physical objects. A lot of the things that I design are made in China and other countries in southern Asia. On a daily basis, I work closely with manufacturers and their sales teams, design staff, and engineering groups to usher new objects into existence. I also spend a considerable amount of time visiting manufacturing partners at their factories in China and elsewhere in Asia. Over the last several election cycles but especially in this last presidential race, there has been an increasing call for companies to move their manufacturing back to America. No candidate for office has been a more vociferous advocate for manufacturing repatriation than Donald Trump. As I have a deeper-than-average experience with consumer goods production and manufacturing, I think it is important to provide context to The Donald’s claims (and those made by a number of other prominent politicians from both sides of the aisle) especially when he claims that he’s going to get Apple to “manufacture their damn computers and things in this country”.

First, it is critical to understand the financial scale of Sino-American trade. China currently sends $482 billion in goods to the USA every year- equivalent to about 2.5% of the United States annual GDP. In turn, the USA sends just under $200 billion of goods and services to China every year- equivalent to about 1.7% of the annual GDP of China. In short, the two economies are hyper-interlinked and consequently highly dependent on the economies generated by this trading relationship. If half this trade were suddenly gone with no real replacement, America would face economic conditions like those that developed during the recessions of the early 1980s (-1.6% GDP growth from 1981 to 1982) or the early 1970s (-1.84% GDP growth from 1973 to 1974) with no temporarily constrained installed base of economic production to replace that loss; a recovery would likely be slower than in the past.

America wants everything, but cheaper.

The American consumer is in love with cheap goods. In a study conducted by the Associated Press and GfK, three out of every four American respondents reported that they prefer buying cheaper goods even if they are produced overseas. Only one in ten reported that they try to buy exclusively USA-made goods irrespective of price. This preference is immediately apparent in the context of direct-to-consumer wholesalers like Costco and large online merchants that specialize in providing almost unbelievable value across a diverse range of products. Amazon is the prototypical example; it now offers a line of basic consumer products (“Amazon Basics”) that are produced in China and are sold for prices that consistenly undercut even the cheapest alternative.

Imagine that a vast majority of what you purchase suddenly became 15% more expensive. This is a very conservative estimate in light of the 45% tariff that Donald has promised to impose on Chinese goods. This cost increase, functionally an imposed pay cut through a widespread increase in the cost of necessary and desired goods, would be unavoidable. Independent of the truly mind boggling array of other goods that China produces, the country currently makes 43% of all clothing in the world, 70% of cell phones, and 60% of the shoes. Keep in mind that these statistics account for only Chinese manufacturing and not that of other Asian trading partners like Vietnam and Thailand which also have robust production economies of their own.

The barriers to production are far lower in China

• While a portion of Chinese workers are from distant rural areas and come to population centers to make money before returning home, a larger and larger percentage live in cities and commute to their factory jobs every day. The incredible density of Chinese cities means that there is never a shortage of hands ready and willing to work on a factory line. Related physical barriers to production, such as shipping time and distance between sub-suppliers, are accordingly very low in Chinese manufacturing cities. Furthermore, the manufacturing output of any given industry tends to be grouped within one city or subregion. Each manufacturer benefits from proximity to the other similar manufacturers even if they are in direct competition with one another as, for example, they unintentionally leverage the economies of scale that naturally develop when shipping goods along established trading routes.
• China controls a lion share of the global raw material production including 28% of global plastic production. This dwarfs the 18.5% produced by all NAFTA countries combined. Not only does this mean that China has more raw material on hand but it also means that Chinese manufacturers do not have to account for lengthy international shipping times and import tariffs when purchasing for production.
• The factories that produce the objects that I design are largely clean and well-regulated as both my employers and I take extra measures (random factory inspections, regular in-person reviews, product spot checks, etc.) to ensure that laws are followed and there are no abuses of labor present in the production process. Despite the respectable conditions in legal factories, Chinese workers are still making a little less than $300 per month; this is just above the minimum wage in China and is about a quarter of the monthly minimum wage in the USA. Put simply, American workers are extremely expensive by comparison.
• At this point, the cost of operations and wages in China (which have increased by about 12% year-on-year since the turn of the century) are becoming too onerous for an increasing number of businesses so they are uprooting and relocating to other cheaper less-developed and less-regulated countries in Asia to save on labor costs. These actions are extremely drastic and pose almost insurmountable legal, cultural, and operational challenges that factory owners are fully willing to risk in order to protect their tight margins. If China is too expensive, America is certainly too expensive.
• The logistics infrastructure that exists in China is extremely well developed. While America also has a sophisticated logistics infrastructure, it is nowhere near the scale that would be required to handle a massively increased need for internal transfer of goods. Of course, logistics companies could scale to satisfy this need but this challenge is no small task and shouldn’t be overlooked. It would take time to evolve and during that time production would be significantly hampered.
• Supply chains for large companies like Apple and their “damn computers” are well-established and built on years of work by thousands of manufacturing engineers and quality auditors. Relocating this supply chain, or even changing one link in the chain, would be a Herculean effort.

American-made everything?

Deserved or not, American-made goods are synonymous with a high level of quality. If you’re American, it feels good to buy American goods and services. I buy American-made goods whenever possible. But what does that actually mean? Does American-made mean that goods are assembled in America? Given that a vast majority of raw materials come from elsewhere in the world, does a good that is assembled in America but made from non-American materials still count as American-made?

Ultimately, “American-made“ as an absolute truth is functionally unlikely if not impossible. It is important that we hold our elected officials accountable for talking honestly about this topic and all of the shades of gray in which it exists.