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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."
The Chinese are in a wonderful and unique position to take over as the number one superpower and number one consumer of goods, turning the USA into a number 2 or 3 within a few years. Let's start off with the fact that China now has a "middle class" of fairly affluent working class people that is over 300 million strong.
Let me repeat that in case you missed it: Their middle class is as large (or larger) than the entire population of the USA. This middle class is buying. China can now self-sustain. In other words, there are enough people now in China with the money to buy stuff made in China.
So, we, the USA, need the Chinese more than than China needs the USA. Furthermore, the Chinese are smart enough to both "outsource" to cheaper countries than themselves, while acting as middle-men to their USA 'bosses', and while we will eventually get around to cutting them out (as we did to Japan), it will be too late by then, China will be selling in the USA directly (as the Japanese do, with established brands), and, as I said, they can self-sustain.
China, however, may "import" slave-labor (or nearly so, within boundaries of international law), allowing the Chinese a more relaxed lifestyle while imported workers do the grunt work for low wages. This will allow them to keep prices low and maintain their existing infrastructure of factories.
We just need to be careful though that *we* aren't the slave labor they decide to import.
If telephones are outlawed, then only outlaws will have telephones.
It's tough to make gadgets in the US because it is hard to scale regional supply chains to the size you'd need for a popular gadget. In parts of China or Taiwan there are hundreds of companies available to select as component suppliers. They can put crates on a truck and have more available within the hour. There are lots of places to go for large scale PCB manufacture in these regions as well. Even in silicon valley we have trouble with companies if we want to scale past about 10k units. For enterprise equipment those volumes are acceptable, and there are a few companies that make expensive equipment in the US. There are also lots of places that do final assembly in the USA (Dell), or some components in the USA (Intel).
It is possible to build up partners to get all the components you need. You can find everything (or nearly so) manufactured in some quantity in the US. And if there is money to be had, those businesses will scale up to meet your demands, eventually.
“Common sense is not so common.” — Voltaire
Yep, another hell-hole almost definitely. But, is that really a bad thing? It seems to me that outsourcing menial labor is the one international aid package that has a long term history of success. There's a lot of countries that are prosperous, developed nations today that were poor, developing nations when we started sending jobs there.
I'm betting that the next manufacturing center will be Africa, maybe even Somalia (no taxes! (Only joking obviously)). Guess what, anywhere that people can work for pennies on the dollar compared to the competition is going to be a tempting target for industry. And generally anywhere that people are willing for so little is by definition a place where very little is better than what they have now. Eventually, after enough money gets dropped into their economy pennies isn't enough anymore and we move on, but the factories, businesses, and trained workers remain and their economy is much better for it.
I'd love to see manufacturing jobs return to the US, but that isn't going to happen until automation is cheaper than developing nation manual labor. And when that does happen it's going to put the brakes on every developing country who relies on rich countries outsources to them for cheap labor.
There are two commonly held misconceptions in your post:
1) the US manufacturing sector is in decline
The US export per GDP is now #179 in the world. That sounds pretty bad to me. Now, we have such a large economy that the raw numbers look great, but saying the US manufacturing sector isn't in a decline is pure nonsense. If I remember correctly, we're on the same performance level as Burma.
The US economy will cease to exist as you know it within your natural lifetime. I say "natural" lifetime because with the pending socio-political-economic collapse, many people will probably come to unnatural ends much sooner than they expect... ...The United States Federal government, as well as the governments of 49 of the 50 states, are legally insolvent. Not only is the federal government out of money, but the largest area of spending growth is debt servicing...
And more bullshit. Our external debt level is not even at an all time high (which was 120% after WWII). People are flocking from the Euro to the Dollar as we speak. No, really:
Global investors flock to US debt at record speed
Gregory Daco, economist at HIS Global Insight, said the investment trends were clear evidence of trust in the US. "As the sovereign debt crisis in Greece intensified in March, foreign investors mostly sought refuge in the safe-haven US Treasury bonds and notes," he said.
"Nonetheless, government agency securities and corporate debt provided very attractive alternatives for investment – an encouraging sign that investors have faith in the US recovery."
You mean the end-of-May jobs numbers that caused the market to crash when they were released?
The one that said the only real job growth was the 400,000 temporary census workers?
Take the minority of Americans who pay taxes [guess what: over half of AMericans are no longer net tax payers], and tax them at _100%_. Do it. Do the math.
If you taxed all current tax payers at 100%, you could not raise enough revenue to cover us.
It is a spending problem -- and only a spending problem.
My opinions are my own, and do not necessarily represent those of my employer.
I have some bad news for you. America is already "a bunch of corporatists". Ironically, Ron Paul is probably one of the only legitimate critics of that policy, and is so "right wing" that the republican party does everything it can to suppress and exclude him.
It's really frustrating to try and talk politics in this country when people think of things only in terms of "i am on my team, and you are on your team, and your team is always wrong about everything".
There are no teams; we're _all_ going to lose big.
Some people may, but I am not "hoping for a terrible end". I have 2 babies in the NICU right now, and nothing will make you feel helplessly vulnerable and dependant on an advanced modern society like that does.
I'm saying unpopular things here [and elsewhere] to provoke discussion, and if there is any merit to the notion of our impending financial collapse, to do two things:
- to help people prepare to ride-out the impending storm
- to help people convince voters to vote-in people who will attempt to control the crash instead of letting the country go blindly over a cliff, saying "it won't happen" all the way down..
I keep showing up to work ever day, so I beleive that the US economy isn't a lost cause. I'm doing my part to keep the ship from sinking.
But I'm doing some other stuff on the side to hedge my bets.
My opinions are my own, and do not necessarily represent those of my employer.