Obama, Romney discuss Apple, manufacturing during debate
updated 03:00 am EDT, Wed October 17, 2012
Candidates share their perspective on competing with China
Near the end of Tuesday's second Presidential Debate between Republican Mitt Romney and Democrat Barack Obama, the two men were asked about how the US could "bring back" manufacturing jobs to America rather than have the majority of such work be done in countries such as China. True to form, the two men provided very different answers to the question, and illustrated many of their differences in their responses. Governor Romney focused on China's "cheating," while Obama said the real solution was not in low-skilled manufacturing jobs.
Romney decried China's stealing of intellectual property, the way the country games the currency system to prop up its own economy, and said that China wasn't "playing fair," making it impossible for the US to compete. He said that on "day one" he would name China as a currency manipulator, which would allow the US to dictate higher tariff on imported goods. At another point in the debate, Romney mentioned that US jobs needed to be "more flexible" to compete but didn't elaborate on what that actually meant, though critics said he was referring to lowering wages. He hinted that he would give further tax breaks to companies that "bring back" manufacturing jobs to the US, apparently unaware that the Obama administration already has a similar program in place.
Obama repeated a view that he has espoused several times, one that has been echoed by former Apple CEO Steve Jobs and former President Clinton: that low-skill, low-wage jobs like those of the Foxconn workers are never "coming back" to the US (Chinese-style manufacturing jobs haven't been here since the Industrial Revolution, argue critics), and that education and skills training is where the US should put its emphasis to create a workforce that excels in higher-skilled and thus higher-paying jobs. In his brief remarks he may have given some viewers the impression that he envisions everyone being a scientist or engineer, but supporters contend Obama was referring to jobs that pay living wages at various skill levels but can provide for a stable jobs market consistent with a decent living to the US standard for the worker and their family.
The question in general was a bit loaded, since the US, as Jobs observed, simply can't match the Chinese either on cost or on worker mobility anytime in the foreseeable future. China has invested in factories that employ tens of thousands of workers and built campuses where the workers live both on-duty and off, in small dorm rooms and at wage levels and long hours few Americans would find acceptable. Because the workforce lives at the factory, changes in manufacturing plans, output and design can be rapidly accommodated in a way no US factory could handle.
Another factor in the China equation -- even before one gets to the low wages (by US standards, higher-than-average by Chinese standards) that allows items like the iPad to be practically hand-made -- is that all the component manufacturers, parts suppliers and other elements in the overall chain of pieces that make up a product like an Android smartphone or an iPod Touch can all be centrally located in the same region thanks to centralized planning by Chinese authorities, who have complete discretion over density of plants and issues such as zoning. It is both dramatically less expensive to make an iPhone in China, and dramatically faster.
The entire supply chain cannot realistically be moved to the US, even if demand for such jobs existed. While Apple has intimated that it may be able to do more to bring some of the higher-paying jobs stateside, the majority of the work -- tool & die, rare earth mineral extraction, fabricating parts and assembly -- cannot be relocated, and dividing the labor between the two countries would dramatically increase both costs and manufacturing time. While President Obama may be correct about the realistic possibility of such jobs coming "back" to the US, Governor Romney's point about pressuring China to compete with other countries on a more level playing field is also well-taken, and worthy of further study and action.
Some portions of the iPhone is, in fact, made in the US. The processor, which Apple created using ARM-based foundations, is manufactured in Austin, Texas using both Apple and Samsung engineers, and Gorilla Glass is at least partially manufactured by Corning, a US company, in Kentucky. However, as President Obama pointed out -- these are exactly the kind of high-paying jobs the US wants. Most of the rest of making the iPhone requires much lower-skilled workers, particularly for final assembly, which does not command a high wage in either China or the US. Analysts estimate that the iPhone would need to sell for $65-100 more per unit -- and require considerable private and public investment in manufacturing infrastructure -- for devices like it to be made in the USA.
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Obama is right!
No one in America is going to be able to compete in low-skilled assembly jobs with China. These kinds of jobs will never come back to America because these kinds of jobs migrate to poor countries. In fact, these are the same kinds of jobs that left Japan in the 80's and 90's. Companies like Foxconn save money by not using machinery which would normally be used for repetitive assembly. Foxconn is taking advantage of a market window where there is a great deal of technology churn, which makes it difficult to invest to heavily in automation because product life cycles are very short.
Where out-sourcing is really killing the US is in the skilled job market. Software development is increasingly performed in India and even Pakistan and is only managed by high-level project managers in the US. Computer processor designs (floor-plans) are are increasingly created by the same overseas foundries that manufacture the chips. Eventually, America may not only loose its edge in processor design, but also in software design and development. Americans need to be prepared to embrace high-skilled science and technology jobs or we could become a nation dependent on shaky world of real estate and financial investment to provide any economic growth.