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Why the iPhone is Made in China and Why it Will Never be “Made in the USA”

By: Brad Jackson (Diary)  |  January 24th, 2012 at 10:02 AM  | 

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On today’s edition of Coffee and Markets, Brad Jackson and Ben Domenech are joined by Francis Cianfrocca to discuss the iPhone’s manufacturing process, why it can only be done in China, and the reasons technology manufacturing will never return to America.

We’re brought to you as always by BigGovernment and Stephen Clouse and Associates. If you’d like to email us, you can do so at coffee[at]newledger.com. We hope you enjoy the show.

Related Links:

How the U.S. Lost Out on iPhone Work
Apple’s results hinge on the iPhone question
Making It in America

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  • Death_of_the_Donkey

    1) the decline in US manufacturing employment coincides almost precisely with the passage of PNTR with China (ie, so called free trade).

    2) China operates almost completely outside the bounds of markets (except where it is convenient for them to do so (huge direct subsidies/grants to companies, pegged currency, etc) so that they are essentially cheating the entire concept of free trade

    3) I am going to guess that if we forced China to actually observe free trade (ie float the currency and stop the direct subsidies/financing), many of those jobs would in fact come back here.

    4) As much as we would like to, I don’t see how Francis even remotely pins this on Obama. The problem clearly began in the late 90s/early 2000′s and isn’t related to any of O’s policies (for a change).

    5) I still cannot see where Reagan would have ever agreed to a “free-trade” deal like this with the Chi-coms. Could you have seen him giving the Soviets this kind of a leg up? Heck, he even went after the Japanese.

    • http://www.hakubi.us/ Neil Stevens

      How unexpected. Not.

      • Death_of_the_Donkey

        Really? So now advocating that our trading partners actually utilize the free market is advocating higher taxes? Do you really believe Reagan would have given the Chi-coms these kind of terms?

        • http://www.hakubi.us/ Neil Stevens

          One was that you wanted us to invade China and force them to open up.

          The other was that you wanted us to end PNTR for China and raise tariffs.

          I assumed the latter. Feel free to correct me if I’m wrong.

          • Death_of_the_Donkey

            But you cannot say you believe in free markets and then carve out a giant exception for China. And I do not want to either end PNTR or raise tariffs, just do so until the Chi-coms actually adopt a free market approach to trade. I could care less what they want to do with their environment and labor standards, but until they start floating their currency and letting markets decide, then I think we should penalize them (not just tariffs, import restrictions worked pretty well for Reagan).

          • http://www.hakubi.us/ Neil Stevens

            You’re here to promote higher taxes.

            I’m not surprised.

          • Death_of_the_Donkey

            Tariffs/Import restrictions do not = higher taxes in all cases. The free market sets prices. If Apple cannot sell an iPad for more than $500 then they would have to eat the tariff (for an example) and they have the room to do so in their margins. Under the Reagan import restrictions on Japanese cars, the econometric guess on the increase in car costs was vastly offset by the huge number of jobs created (and ensuing wealth effect) when the Japanese automakers located production here (and their supply chains, etc).

            Also, let’s be honest here, the primary beneficiaries of this so-called free trade policy are the largest corporations. The smaller, locally owned companies that do not have the option to outsource production get driven out of business by the big guys who lobby for these “free-trade” agreements. And last time I checked, something like 80% of job creation takes place in small businesses. Free trade is great, but it should be market based. If the Chinese float their currency and end the direct subsidization of manufacturing (building factories, providing free utilities, etc) and still kick our butts, then so be it (and they still would in many industries). I am a believer in free markets, not manipulated ones.

          • jakeofalltrades

            then we would be suing them in WTO court. That’s how you get retaliatory tariffs to encourage other WTO members to open up.

            What allegation of dumping, technical barriers, or illegal tariffs are you making?

          • Change Jar Conservative

            It’s not because we don’t think there is a legal reason to sue them.

            It’s because we are afraid of offending them and getting shut out of China.

            Republicans are for American Exceptionalism unless it’s in the job market where we bow down and give the Chamber of Commerce what it wants instead, like cheap labor via unfair trade deals and unnecessary special Visas.

  • norm38

    I was listening yesterday to Rush defending the merits of communist labor and could barely believe my ears. Here’s one of the defenders of the free world, just gushing over the ability of a huge communist government to assemble 3000 workers at a moments notice and serve them up to a corporation, He went on about how amazing it is to have thousands of workers living at the company factory, in company dorms, eating company food, shoping only in the company store.

    Is that the capitalist vision? Exploiting workers owned by a State? Using communism to drive down labor costs?
    Using the Chi Coms to make a quick buck (all while they’re stealing our IP) isn’t Conservative and isn’t Free Market.

    • goodgovernance

      That gets us away from the Chinese communist slave labor model wins huge with the American electorate, is my prediction. Or eventually the people get desperate and that’s when they turn to the false promises of socialism and Marxism.

      • lineholder

        then I would wholeheartedly agree with that.

        It’s almost stunning to me at this point how little the candidates we still have remaining in this race seem to relate to small business owners and entrepreneurs. This group of citizens is the backbone of our economy right now, not the big-business owners…although I daresay that Dems and the left wish it to be otherwise because it is much easier to establish and maintain control over big-business via regulatory measures than it is over the small business endeavors.

        There are small business owners who have started from scratch across the entire political spectrum and the majority of them have been extremely reluctant to expand or grow their business for the past three years simply because of the uncertainty and inability to know what totally outrageous taxes or charges our government will impose on them next.

        In this context, I’d agree that whoever captures interest and support of this demographic of the American population will have solid support going into the general election. And it would gain support from those who have hopes of becoming small-business owners in the future as well.

        • goodgovernance

          When I think about a bright future for America, it’s a future that’s realistically possible largely because of small business owners, and individual entrepreneurs. They’re the ones with the energy, creativity, and optimism, if Washington would just get out of the way. I certainly don’t see America getting rescued by big business CEOs.

  • norm38

    I was listening yesterday to Rush defending the merits of communist labor and could barely believe my ears. Here’s one of the defenders of the free world, just gushing over the ability of a huge communist government to assemble 3000 workers at a moments notice and serve them up to a corporation, He went on about how amazing it is to have thousands of workers living at the company factory, in company dorms, eating company food, shoping only in the company store.

    Is that the capitalist vision? Exploiting workers owned by a State? Using communism to drive down labor costs?
    Using the Chi Coms to make a quick buck (all while they’re stealing our IP) isn’t Conservative and isn’t Free Market.

    • Ausonius

      I teach when his show is on, and have not had the time to check a transcript, but I would suspect that he was being ironically satirical with such statements.

      What he describes is the Chinese Communist version of capitalism, and the tragedy is that we are supporting it: your objections are on target, but I would think that Limbaugh was agreeing with you in his satirical way.

      If not, then I would be very surprised!

      • texashistorian

        out in his way why those jobs won’t be done in the U.S. It wasn’t praise for the system, just a breakdown of why it works as it does. Saying it is amazing isn’t endorsing it- it is if you look at it dispassionately- it’s just just pointing out why some companies will always choose to do business in places like Communist China.

    • gekster

      Read the transcript of the segment you are talking about.

      Why Apple Can’t Make iPhones in America

      You are taking it out of context, or maybe that’s what you wanted to do in the first place.

      • norm38

        Where is the pushback from Rush on this capitalist/communist partnership? He just took it at face value that Apple’s factory can only be in China. Except there are no technical reasons why the iPhone and all it’s components couldn’t be made in an American factory. The comment about environmental laws preventing the screen change is junk and Rush knows it. The only advantage to using communist Chinese labor is cost. When thousands of Chinese pesants are starving, yes it’s quite easy for the State to round up a few thousand and ship them off to a factory to work for penuts. And yes, having an army of slaves does make it easier to do a one month redesign. But if Apple had noticed in a timely fashion that the screen got scratched, they could have designed it right from the beginning. Nothing in these articles supports the argument that the iPhones can only be made in China. They can be made in the USA by American workers just fine. It’ll just cost a bit more.

        But so what? Isn’t having employed American workers with money to spend a good thing? And on that point, let’s look at your sig line – GOP for the rich, Dems for the poor. If you want more GOP voters, then you want more people to have more money, correct? Now how does outsourcing jobs to China make the poor richer, so they’re more likely to vote GOP?

        If you tell the American people that jobs aren’t ever coming back to America until poor Americans become communist and agree to live in factory dorms for $17 a day, is that going to make people be more likely, or less likely, to become desperate and support socialism and marxism?

        • gekster

          Read the transcript.

          He was making a comparison on the way the Chinese can get things done, compared to all the hurdles that Americans have to go through to get things done, re manufacturing.

          But that’s not what you want to see, so you don’t see it.

          • norm38

            I do understand the comparison. The Chinese can use their massive supply of nearly free communist slave labor to run massvie factories that just can’t be done the same way in America with the labor of free men. Rush likes what he sees in communism and is perfectly willing to exploit it. Or at least, he’s not going to complain about it.

            However, I don’t consider paying workers (so they can support themselves and drive the economy) to be a hurdle. And I don’t consider using slave labor to be a good conservative business practice, no matter how much money it makes for investors.

            I have been in the electronics industry for 15 years and I have not seen a single piece of regulation, not one, that would send me running to the communists for help. Sorry.

          • http://impudent.edublogs.org/ kyle8

            They are still an authoritarian one party state, but they have in some ways even more economic freedoms than we do now. Their citizens would be astonished to be called slaves.

    • aesthete

      Labor-intensive manufacturing in the US is gone. Improvements to capital, restrictive laws and regulations, and a labor force that is well-educated and which will (rightly) demand a high wage due to their options in the labor market have made it so that having a labor-intensive manufacturing plant in the US to the extent that it was done in the past simply isn’t worth the cost of business. Large-scale manufacturing as the nation’s trade was a brief moment in time made possible by the fact that our competitors’ industrial capacity was burned to rubble in WWII. That is no longer the case. The choice is not between jobs in China, or jobs in the US: it’s between jobs in some third-world country where labor-intensive manufacturing is cheap and feasible, and a very capital-intensive plant in the US. If that third-world country isn’t China, it will likely be some other country with a low market-clearing wage and high worker productivity.

      • hobarticus

        Manufacturing output in the US is actually on a long-term upward trend, it’s just that advances in automation have mitigated the effect on job creation. The iPhone will almost certainly be made in the USA again some day, it will just be made by American robots instead of people. If you look at it a certain way, the cutting edge of manufacturing is in the US, not China, whose model will be subject to the same trends, long-term.

        This article contains some good graphs on the point:
        http://blog.american.com/2010/04/making-more-with-less-us-manufacturing-efficiency/

        • bonnman

          Look at the textile industry, now highly automated and it has yet to return to the US and most likely it never will. Its factories that drive manufacturing innovations and if those factories are in China then the manufacturing innovations stay there. Foxconn is already building their robot factories.

          http://techland.time.com/2011/11/09/how-foxconns-million-machine-robot-kingdom-will-change-the-face-of-manufacturing/

  • http://impudent.edublogs.org/ kyle8

    The consumer electronic componants, just like textiles and cheap consumer items are manufactured in areas with a comparative advantage. But the bulk of the value for an item like the Ipad is not in the manufactered object. That is, last I read only about 27% of the cost.

    The rest is the packaging, selling, advertising, and distribution as well as the profits which are all here.

    Look people we ought not want those type of manufactures anymore. If your country has a comparative advantage in lower cost consumer items and textiles it means you are a POOR country!

    If China depresses its own currency to prop up it’s exports then that means that poor Chinese people are subsidizing sells to wealthy American consumers! We ought not want to do the same thing to our people.

  • citizenkh

    Foxcon has opened a large complex in Brazil and is taking much of the business away from China.