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Where Will Your Next Gadget Be Made?
hackingbear writes "The New York Times is warning of the possibility of price inflation for gadgets, cars, and many other items, not from our skyrocketing government debt, but rather the increasing cost of doing business in China. Coastal factories are raising salaries, local governments are hiking minimum wage standards, and if China allows its currency, the renminbi, to appreciate against the US dollar later this year, the cost of manufacturing in China will almost certainly rise. (The report missed the biggest cost factors in China — electric and water utility costs.) 'For a long time, China has been the anchor of global disinflation,' said Dong Tao, an economist at Credit Suisse. 'But this may be the beginning of the end of an era.' The shift was dramatized Sunday, when Foxconn, the maker of the iPhone and everything else, said that within three months it would double the salaries (rather than the rumored 20% increase) of many of its assembly line workers."
"And last week, the Japanese auto maker Honda said it had agreed to give about 1,900 workers at one of its plants in southern China raises of between 24 and 32% in the hopes of ending a two-week-long strike, according to people briefed on the agreement. However, while big and famous manufacturers, like those in the US and Europe, may worry about their PR images and give in to labor demands, it is unclear if thousands of smaller ones will follow. And given the millions of people waiting for work in other countries, from India to Vietnam, the only thing that may have changed is the prevalence of Made in China labels of your gadgets."
Since I live here in the US, I'd really like to see a return to the US for manufacturing. We're still teetering on the brink, don't let day to day market-droid speak fool you.
The US is not anywhere near out of the woods yet.
So...I'd like to see my next gadget have "Assembled/Made in the USA" on it.
Just as I'd suspect anyone from another country would prefer their country to be the country of assembly for their next gadget.
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It's no longer efficient to do anything of substance unless it is required(and only to those requirements).
Twitter supports and protects racists - by smearing their critics with the "Hate Speech" label.
I'm not sure it's so much "out of the woods" as much as it's beginning to be "sweep the undesirables (long-term unemployed) under the rug" to make things look better.
Twitter supports and protects racists - by smearing their critics with the "Hate Speech" label.
How will I ever afford electronics if the people making them are paid 50 cents a day rather than 25 cents a day? :(
The fact is, most of us can't afford to live in an america where everything is made by people who are paid $46,000 a year.
It's been said, a pair of $75 nike's would cost $300 if made by americans.
I think the next step will be more versatile machines (aka robots). Which leaves the issue of jobs for americans still unsolved.
Pay $50k for a robot, and run it 3 years, and you undercut even a $20k job. (not including social security taxes, etc.).
She was like chocolate when she drank... semi-sweet at first and then increasingly bitter.
Anyone remember "Made in Japan"? Then "Made in Taiwan"? Now, "Made in China". Manufacturing moves to the cheapest location. This is how globalization works, for better or worse. If China becomes too expensive, somewhere else will arise to take up the slack and open near-slave labor factories.
Hopefully, this results in a rise in living conditions for everyone - My personal pessimism has doubts.
curiously, as costs at the bottom rise, some manufacturing comes back to the home shores. sometimes it's shipping costs, sometimes it's snafus avoided, sometimes it's market pressure to have a made in USA alternative.
the rest of the market goes downhill further, as they move to green monkeys in Kenya, with the local human population pushing chips and solder into the trees, and catching the hot circuit boards as the monkeys drop them down.
when the monkeys need too many figs to keep working, it will go to pirahnas on the Amazon, or little green men from space who need busywork while their flux capacitors recharge, or whatever.
best you can do as a consumer is reward those who don't participate in the race to the bottom.
if this is supposed to be a new economy, how come they still want my old fashioned money?
If you spend a day in the house of a Chinese factory worker, I'm sure it does count as a mansion.
Globalization is the way that capitalism wrote an IOU to itself. That IOU is coming due.
No thanks.
Never mind the corruption(making Chicago look saintly) and contempt for the US that still exists there.
Twitter supports and protects racists - by smearing their critics with the "Hate Speech" label.
While your point is valid overall, I would point out that the definition of "middle class" in China or any developing country is not the same as in the West. The whole structure of production and prices of available goods and costs of living is wildly different. For instance, middle-class workers in China or India are very unlikely to be able to afford two cars, a huge house in the suburbs, and wide screen TVs in every room. On the other hand they are much more likely than we are to be able to afford nannys, maids, drivers, etc., because the cost of domestic labor is much cheaper there compared to here. These differences make it very difficult to compare purchasing power, especially when currency exchange rates, interest rates, and labor costs are not allowed to clear in most countries for political reasons.
Nonaggression works!
This also illustrates why in the USA, *small business* success is so critically important to any hope of "economic recovery".
When we talk about such items as $75 Nikes that "would cost $300 if they were made in a factory full of USA union labor, paid $45K plus per year", we neglect the possibility that SMALL companies making unique shoes could compete nicely - providing a truly USA made shoe at more like an $85-100 price point - while still earning respectable salaries for the people working there. Sure, they won't employ nearly as many people as a big factory, or even sell as much product -- but the point is, MANY smaller companies can co-exist, all offering alternatives for footwear.
Sometimes, I think we're so fixated on the concepts of "economies of scale" that we forget it's not a universally beneficial thing? When a business grows to a certain size, they have to spend a LOT of money on advertising/marketing to convince people their product is the one they want to buy/keep buying. (And how is all of THAT paid for? Yep ... rolled right back into the price tag of the product.) They also tend to make so much product, it starts making economic sense for them to automate/mechanize all sorts of processes that allow hiring cheaper labor (employees who don't need as many skills or as much intelligence, because they're pressing a button or pulling a level repeatedly, instead of *understanding* how to do whatever process happens as a result). That leads to a lot of low-paying jobs, vs. a relatively small number of higher-paying ones.
With many smaller businesses turning out similar, competing products - you tend to encourage people to buy more regionally/locally from whichever supplier is nearby -- and they can sell to those folks without needing to launch multi-million dollar marketing campaigns with celebrity sponsors, etc.
Nationalistic bickering aside, this is very good news. As living standards rise around the globe, labor will get more expensive, sure, and our iPods might cost 20% more or something, and in return, human beings on the other side of the planet have food on their table and work to do. It's good for the world that labor in china is getting more expensive in every way except the most short-term "I want my shit cheap right now" way.
We are not going to be able to bully China into submission like we are used to doing around the world. How about if we start trading with her and learning to respect their culture? That doesn't mean ignoring human rights abuses, but it means respectful engagement.
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Well, they are going to be using a lot more resources - eating more meat, driving more cars, more precious metals, all that good stuff. Energy costs will soar when the global economy recovers. But don't get me wrong, I can hardly complain when their consumption is on average still a fraction of mine. And maybe their armies of engineers will figure out a post-fossil-fuel economy.
No, they aren't, and the reason is the currency. They've been subsidizing the rest of the world on the backs of their own people by keeping their currency undervalued and not freely convertible (by Chinese people). The only way they could "take over" as number one consumer would be to eliminate that policy and allow their citizens to enjoy the fruits of their labors... but doing so would raise the costs of Chinese good enough that the boom could not be sustained.
The idea that China is anywhere near the United States in development is largely propaganda. There are huge, frightening issues that the Chinese know about and are trying desperately to fix, all the while trying to come off as a superpower.
Take, for example, agriculture. Chinese agriculture is a hundred years behind the United States, and not just because they can't afford to upgrade. The government forces manual labor simply to try and keep living inland viable. Were they to mechanize the labor needs of the central part of the nation would plummet, and massive migrations to coastal areas would take place: coastal areas that are already largely squalid pits. This has been commented on off the record by Chinese officials, but they would never openly admit it.
Infrastructure in China is hugely underdeveloped, to the point where the government there is raping local ecosystems in a desperate attempt to keep up with growth. The United States did the same thing, though spread over a longer period and with 1/5 the population. This will catch up with them in the not-too-distant future, and there will be hell to pay.
Then there is the problem of population imbalance. Most of us know about the "one child" restriction many Chinese are under. Most of those children born are boys, for cultural reasons. The male/female gap in China is in the tens of millions. And those young men are just reaching relationship age. What happens when 50 million men realize it is mathematically impossible to have a family? Talk about a social experiment.
Combine these with the typical problems associated with repressive governments, and we have ourselves an interesting pot of instability. The "growing middle class" is just the cream floating on top of a vat of very rotten milk, and I suspect we are going to see just how unsavory it is in not too long. I'd say India is far more likely to become a power than China, if we were betting. Though in reality, we might be looking at a superpower-less world in the near future...
Nationalistic bickering aside, this is very good news. As living standards rise around the globe, labor will get more expensive, sure, and our iPods might cost 20% more or something, and in return, human beings on the other side of the planet have food on their table and work to do. It's good for the world that labor in china is getting more expensive in every way except the most short-term "I want my shit cheap right now" way.
That's a bit shortsighted.
Gadgets are not something like food; their novelty/luxury items. If (when) the cost goes up across the board, people will spend less of their hard-earned money on the things they don't need - ie, gadgets. (Perceived) quality will need to go up a similar proportion as the increase in cost for the product to remain competitive (remember the 'high quality' Erickson, etc. cell phones from a decade ago? - they were supplanted by other products offering a better price value).
In return for the decreased demand, there will be less manufacturing done; this will further increase the manufacturing cost per unit, likely leading to a loss of jobs in the foreign plants (unless they're able to cut costs). Increasing costs to your customers NEVER results in more business unless it is paired with a (perceived) equitable increase in the product.
As for respecting China's culture... sure, I'll get right on that. My first cultural taboo to learn to respect is child labor. After I've gotten over that, I'll work on violent persecution of belief systems I don't agree with (Christianity, Islam, etc.). Then I'll work on agreeing with overt state-controlled censorship, and finally, the wanton destruction of the ecosystem and disregard for dumping toxic waste. In fact, I might start on the toxic waste thing: it's easy, because all I'll have to do is pour some waste oil into the municipal sewer. I figure that by this time next year, I'll have matured enough as a person to start accepting China's particular brand of threats and imperialist encroachment - just in time for their wholesale invasion of Taiwan or Tibet, maybe.
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The problem becomes one of population. China has been using the rest of the world to haul it's own development levels and therefore standards of living up. I've been predicting this for quite some time; each outsourcing job results in a number of internal jobs starting up, thus the labor pool is emptied faster than many think.
Back on South America as a potential labor pool - China has 1.3 Billion people. India, which the same thing is happening to(and they're perhaps a bit further along), is 1.1 Billion. Wikipedia places the population of South America at around 385 Million, and it's quite a bit more developed than China, on average. Africa is right around a Billion, making it perhaps a better choice, but it's still got issues with stability.
After China and India industrialize, I figure they'll go through the same process we did, and start looking to export labor. Thing is, I don't think 'cheap' labor will last long in the rest of the under-developed world once China and India are 'used up', ie brought up to close to European/American wage rates.
I think that Stability will be a much bigger concern at that point. A region gets ahold of it's problems long enough to convince businesses to take the risk will be hauled up VERY quickly.
I don't read AC A human right
You should educate yourself on Chinese policy. I'd recommend the USCC (Unites States China Commission) as a start. They're only being nice to us until they can build a bigger military, infrastructure, and 'catch up' with the rest of the technological world.
Yes, letting the renminbi float would drastically help world markets, which is exactly why they won't do it. Not until it's actually to their advantage to do so.
"Our goal each year should be to increase the number of goals we set for ourselves!"
the year over year output of US manufacturing has gone up.. for a long time.
Doing this "ratio stuff" you are doing is what is irrelevant. Burma doesn't have a financial services sector to speak of. Of _course_ the contribution of domestic manufacturing hasn't grown as fast as the GDP growth of finanical services.. we just got smashed by the long-standing financial sector bubble in this country. We also just got smashed by a real-estate speculation bubble. We also have the worlds largest software industry. Blah blah.
You are using all kinds of different bars and measures, but you keep calling it "us manufacturing".
If what you meant is "us manufacturing jobs are declining", just say so. If what you meant was "US manufacturing, as a precentage of the total US economy, is declining, as we transition to a service-based economy [btw, that ship sailed]", just say so.
Regarding our debt situation: people are flocking to the USD because while we're screwed, the Euro is screwed even more.
The US has been the proxy manager of the European economic system for about 100 years now. But that doesn't mean our governance has been inerrant. We are currently on our 3rd or 4th "arrangement" with Europe's monetary system... previous arrangements being Bretton Woods, dollar/gold convertability, etc.
Euroean investors are going crazy trying to put money anywhere they can. It's like watching rats on a sinking ship. Did you know that the Austrian mint was _out_ of certain of its bullion products? In 1 month they moved more hard-metals merchandise than they had in the enter previous year?
I am not concerned with the strength of the US economy as compared to others. I am interested in its absolute strength and solvency. Telling me that "at least we're doing better than Europe" isn't very comforting: europe has imploded multiple times in the last 100 years.
The picture of the woman shoving wadfuls of marks into the furnce should be burned into everyone's mind.
My opinions are my own, and do not necessarily represent those of my employer.
As the other reply pointed out, most "middle class" Americans can only "afford" these things because they juggle debt. Most of what you described (sans the house) is paid for on credit cards, and even the house is based on a mortgage that is paid off over 30+ years (and look how many defaulted).
I'm considered middle class (and I live in the USA).
I cannot afford a huge house in the suburbs, and a wide screen TV in every room, unless I am willing to incurr crushing debt.
I'd like to point out however that the Chinese middle class are buying houses (or rather high-rise apartments) and cars. Remember how GM axed the Pontiac brand but kept Buick? Did you ever wonder about that decision?
It turns out that Buick is a well-respected brand in China. Buick is considered classy, and well-to-do, kind of like how Cadillac was percieved here in the 70's. The Chinese middle class are buying a lot of Buicks. So GM kept that brand rolling off the assembly line for the Chinese.
If telephones are outlawed, then only outlaws will have telephones.
Good points. Much of the current U.S. standard of living is ultimately unsustainable due to debt among other reasons. Meanwhile, the Chinese continue to save and to live within their means, accumulating capital that will increase their productivity going forward. While I still think we are way ahead, for now, that will change over time as the Chinese continue to become more prosperous through their own efforts, while we continue to consume our seed capital and demand that the world hand us a living, which, until and unless we start producing more and/or consuming less, it most certainly will not.
Nonaggression works!
So why aid them by allowing US corporations to outsource a crap-load of labor over there? US corps seem to be of the ilk of "rape & pillage while the getting is good", so I don't see how we can take any sort of high ground.
They are building many nuclear reactors:
http://english.peopledaily.com.cn/90001/90776/90884/6640166.html
http://en.wikipedia.org/wiki/Nuclear_power_by_country#Countries_with_nuclear_power_plants
http://www.iaea.org/programmes/a2/index.html (search/highlight "China" on that page)
And I think they are trying to control the supply of materials used for motors and batteries.
Go figure :).
Heh.
My wife and I are raising our son in a 900sq-ft home, have a single car, and one TV. We mostly walk, bus, or cycle to work. My parents have been laughing at us choosing such a backwards lifestyle for the last decade.
We are the future!!!
"People who do stupid things with hazardous materials often die." -- Jim Davidson on alt.folklore.urban
I suppose that's one interpretation. Just because they start enjoying a better standard of living does not mean they have to have a catastrophic banking crisis brought about by poor government incentivizing in the marketplace. And I believe I explicitly said respecting their culture does not have to include the nasty bits.
Currently hooked on AMP
Maybe they don't want everyone's main diet to be high fructose corn syrup. Why do you think China has to go the exact same route the US went? China probably has no interest in building sprawling suburbia.
China has been building infrastructure and with their boom they have shown that the needed infrastructure can be built. You can say they don't have freeways, but they have a very good rail and mass transportation system.
Why is this such a big deal. What will happen is that each girl will have numerous suitors and marriage would mean lots of money to the bride's family. Before males used to be in that position because of deaths in wars; but now it's the females. People won't think it's mathematically impossible, marriage will require at least a certain standard of success to be able to afford one. Then, marriage and family will be a combination of hard work, luck and skill rather than a given. Someone said as a joke the other day that in the US, a lot of young women have weight problems and are not attracting young males; and young males are not embracing the idea of families.
I think the problems of China are different set of problems. Since China was built on foreign know how, it has no value of knowledge and expertise and no incentive to produce homegrown industry and innovation. It's a businessman's world. There are no major companies or conglomerates that are Chinese. They make every product for Apple but don't have a remote competitor to Apple.
You didn't catch on to my points. Agriculture is just one example of an industry that could be more efficient and productive, but isn't due to population instability. There are others. The Chinese aren't able to modernize because without production sinks like agriculture, they would have an idle, jobless population. And that is bad. It has nothing to do with corn syrup and suburbian sprawl... (which doesn't make much sense as a counter argument, unless I'm missing something).
If you think China has excellent infrastructure, you haven't been outside the tourist traps. The country as a whole is critically underdeveloped. But what I was really thinking of was, for example, their dam projects. They are wiping the country clean, destroying the land in an effort to keep up with basic demands like power. And that is with most of the country still underdeveloped. How long do you think they can strip the countryside of gravel, iron, and wood with no real reguard for their environment before it catches up with them?
And as far as a population imbalance, you can't just assume it will work itself out and everyone will just accept it. Its a phenomena we haven't ever seen before (surpluses of women, yes, but not men). You honestly think the creation of a male peasent sub-class with no hope of a family or stable existence isn't going to cause problems? Civil unrest, spikes in crime, and cultural upheval (in a fiercely conservative state like China, I'm sure the upsurge of prostitution this is bound to bring will go over well) are all possible and even likely.
China is trying to do in 50 years what the western world did over the course of almost 150, in a significantly more complex social and economic environment. They are winding up like a rubber band trying to catapult into the 21st century, and I see very little chance they dont snap like one.
That's probably because conspicuous consumption used to imply that you had a lot of available money/assets, and used to be a good indicator of actual wealth.
You know, I used to really think that things that last "forever" were a good idea "all the time". Then I read the sci-fi book by John Ringo called "A hymn before battle". This had little to do with the story, but the general concept was a race that did make everything by master craftsmen and cost so much you had to mortgage them for ~ 150 years to pay for them, but part and parcel, they had a full warranty for the entire payment time and would last generally forever after they were paid for.
For some products and devices that would be great, but not for everything. The race was pretty much technologically stagnant.
Now, out of Sci-Fi for a minute. There are many things that wear out and have to be replaced that I wish I could just buy a better product. For instance, my charcoal grill rusted through and I had to buy a new one. Charcoal hasn't really changed for quite some time, and if the thing could be built to last outside for more than maybe 6 years, it would be great. I'd love to have it last decades. This holds for other items as well, such as a tractor wagon or wheelbarrow.
What it isn't so great for is things that could become demonstrably better somewhat frequently. For instance, I have a clothes steamer that I use to remove light wrinkles from clothes. I bought it about 3 years ago and it was fine. The issue is that it has a water reservoir that it heats up to create steam. This takes ~10 minutes to generate any steam at all and ~ 15 minutes to really get going. Then, it will shut off the heating element periodically to save power or prevent overheating... The problem is this basically shuts off the steam too. So I get 15-20 seconds of steam and 45 seconds of cool-down time.
I just bought a replacement steamer. It's a newer technology that uses some sort of pressurized system. It creates steam in 40 seconds and it's continuous. Now, the old one isn't broken, but I'm sure glad I didn't have a mortgage for x years for a "better built" one so I couldn't upgrade.
Another example is I have an Oreck Vacuum that I bought 2 years ago. It has a 21 year warranty. I see no reason to expect it won't last that long with them yearly (for free) cleaning it up and replacing any parts that are bad. But there are already new models that look prettier (aesthetics are important to many people, if not really to me) and have new features like UV lights on the bottom to kill germs. I don't personally think these features are or would be worth upgrading, but I put a lot of money into the existing vacuum and so wouldn't upgrade for a long time. In 10 more years I might well have to drop the existing investment that would work fine due to great maintenance, but is so far behind technologically I really want the new features.
One existing example is I have a ~ 6 year old Motorolla cell phone. It works fine, and I can replace the battery every 2 years or so for about $5 including shipping. It's strongly built and probably will continue to work for a few more years. However, it is absolutely blown away in functionality and uses by, say, an iPhone or Droid.
Finally, consider Cars. You already have ~5year loans to purchase one now. So look at how invested we are in oil to keep running our economy - wars etc because we can't get people to easily upgrade to a hybrid en-masse due to the cost and expected lifetime of most cars, which is over 10 years now on average, and I certainly see a lot of people going for 20 years. But people with a 20 year old car not only likely pollute more and require more gas, but don't have major safety features like anti-lock breaks, air bags, traction control, electronic stability control not to mention things like cruise control, back up cameras, auto-parallel parking, etc that are either standard or available on many cars now.
I don't like disposable junk, but there are good reasons to allow for reasonable cycles of new technology. I don't think it's a great idea to artificially try and freeze or slow down new tech either.
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