I explained how Donald Trump will bring 10 million offshored jobs back to America in my last article.
It’s already happening.
Today, Apple indicated that it may relocate its iPhone assembly facilities, which currently employ 690,000 people, from China back to America. Good, we could use those jobs to help the 22 million unemployed Americans.
Ford followed suit, confirming that it would not be moving its Lincoln MKC production from Louisville, Kentucky, to Mexico—instead, they promised to invest $700 million over 4 years to upgrade the Louisville plant.
This is huge. And there’s more to come.
But first, let’s talk about Apple. Back in July, Apple asked Foxconn, its Taiwanese manufacturer, to estimate the costs of relocating iPhone assembly back to America, in the event that Donald Trump won.
This was not their first choice—Silicon Valley was Clinton’s top supporter (after Saudi Arabia). In fact, donations from the region averaged $1,276 (compared to tens of dollars elsewhere). Apple’s CEO, Tim Cook, even campaigned for Clinton personally, hosting a multi-million dollar fundraiser in her name. She still lost.
Now Apple’s dealing with the fallout. Foxconn estimates that relocating production to America would result in the assembly cost doubling. Sounds bad, right? Not really. Assembly costs are low. They would double from $12.50 to $25—pretty much nothing when you consider that a 32GB iPhone sells for $650. You will still be able to afford an iPhone, don’t let Apple scare you.
Furthermore, these are the immediate costs. The real costs will come down over time (as they always have), as technology improves, and production streamlines.
It remains to be seen whether Apple will start buying its component parts from American manufacturers (which contribute another $212.50 in manufacturing costs). Presently, it seems unlikely.
Tim Cook says this is because Apple simply cannot buy American, even if they wanted to, because “the US, over time, began to stop having many vocational kind of skills”—Americans forgot how to make things. He’s not wrong, America no longer makes things as basic as spoons and lightbulbs. It’s just ironic coming from him, since companies like Apple are the ones who got us into this mess, by offshoring their production in the first place.
Now we have to deal with the consequences.
As for Ford, today they announced that they would not move their Louisville factory to Mexico. Instead, they decided to hire 300 new employees, and invest $700 million over 4 years to expand the plant’s capacity. These are good jobs. High paying jobs. These are the jobs America needs.
Ford’s representative, Christin Baker, says that Ford is:
“encouraged that President-elect Trump and the new Congress will pursue policies that will improve US competitiveness and make it possible to keep production of this vehicle here in the United States.”
They’re right. Donald Trump’s tariff policy will make America competitive again, by leveling the playing field.
Stuff Will Still Be Cheap
To wrap up: some people think that relocating production back to America will make goods prohibitively expensive.
They’re wrong, here’s why.
1. There are two sides to the equation: consumption and production. Although offshoring may result in hypothetically cheaper goods, it’s equally true that many people either:
(i) lost their jobs (either directly, like factory workers, or indirectly, like the barber who relied on the factory workers) or
(ii) found new, but worse jobs (the average wage cut for a displaced factory worker was 17.5%—waiting tables doesn’t pay as good as building cars, go figure).
At the end of the day, the benefits aren’t as big as you think (if they exist at all).
2. The nominal cost of goods is irrelevant—what matters is the cost of goods relative to wages (the real cost). Since 1973, nominal wages and the cost of goods (as per the Consumer Price Index) have increased at the same rate. This means that offshoring hasn’t yielded cheaper goods in real terms, because it undermines income to an equal degree.
3. This logic doesn’t include something called the Okun Gap, which is essentially the opportunity cost of mothballing capital equipment, and skilled labor when an industry is offshored. Just look at all the abandoned factories and warehouses strewn throughout Michigan. When this is accounted for, the hypothetical “gains” of offshoring are fairly minimal.
4. In the long run, goods are made cheaper by improving technology—any gains made by moving production to a nominally cheaper jurisdiction are a one-off. However, they also reduce the incentive to invest in better (more efficient) technology, because wages are lower. This actually undermines technological advancement, and therefore real economic growth.
It also has the perverse effect of resulting in highly efficient American factories being replaced with inefficient (but cheap) factories in China. This is bad for the world as a whole (because it allocates resources inefficiently), and it’s bad for us in the future (because we lose some of our highest-growth industries).
Apple’s falling in line. The rest will follow.