The problem with Trump's make-it-in-the-USA push
Donald Trump wants to bring manufacturing jobs back to the U.S. Trouble is, his methods would make many goods a lot more expensive for American consumers.
"We're going to get Apple to build their damn computers and things in this country instead of in other countries," said the Republican presidential front-runner in a speech at Liberty University last week. He also railed against U.S. car companies that shift operations to Mexico and called for steep tariffs on foreign-made products to even out the price difference.
But making an iPhone in America, to take one example, could double the price, according to an analysis by CNET.
Here's the math: Foxconn, the Chinese company that assembles the Apple phones, pays its workers an average of $400 monthly. An American worker in a low-pay state like Georgia, earning its minimum wage, would get at least twice that. So, add this extra employer outlay onto the $650 starting price of an iPhone 6S and you'd see a whopping price hike, as much as two times higher.
Or if Apple (APPL) kept iPhone production in China, and President Trump slapped on the 35 percent tariff he has proposed (his numbers vary), the phone would cost a U.S. purchaser $877.
Because domestic manufacturing jobs traditionally pay well, small wonder there's an exodus of U.S. factories to bastions of cut-rate labor. Holding down payroll costs has an obvious appeal to corporate executives.
Trump, of course, wasn't always so outraged against outsourcing to foreign lands. The Trump brand apparel that Macy's (M) carried in its stores since 2004 was made in China. After Trump derided Mexican immigrants as "killers and rapists" last summer, the department store chain stopped selling those goods.
Claiming the split from Macy's was his idea, the billionaire candidate said he insisted that he had "never been happy that the ties and shirts were made in China." Macy's didn't return a CBS MoneyWatch request for comment.
In his Liberty University appearance, Trump vented his ire at a Ford Motor (F) plan to build engines and transmissions south of the border, part of an auto industry trend to move or expand there. The ranks of Mexico's autoworkers have increased 40 percent since 2008.
The wage differential between the U.S. and Mexico is stark. In the U.S., Ford pays around $57 an hour to its factory workers. But in Mexico, an auto employee gets a mere $10. Typically, the cost of labor is 15 percent of a vehicle in the U.S. But at the lower Mexican wage rate, the labor share shrinks to around 3 percent, thus fattening the employer's bottom line.
Sure, lots of factors go into determining an item's price, such as parts, energy and shipping, not to mention profit margin. The currently strong U.S. dollar, for instance, gives goods made overseas a further advantage when exported to America, rendering the foreign merchandise even cheaper.
Trump's jobs plan doesn't address the fact that lower labor costs overseas make imports cheaper for domestic consumers. The National Retail Federation concluded in a 2013 study that, thanks largely to imports, consumer goods sold in America have tumbled in price over the previous 10 years: TVs cost 87 percent less, computers 75 percent and toys 43 percent.
Apparel is a relatively low-cost product that nevertheless illustrates how cheaper manufacturing elsewhere is more kind to American pocketbooks. In 2012, Mike Catherwood, who has a radio advice show, did a clothing cost comparison to demonstrate the price tag difference.
He shopped for a basic outfit that would appeal to Bruce Springsteen: blue jeans, white T-shirt and work boots. The three items, all American-made, cost $421. Domestically produced Levi's 501s were $178, American Apparel white T-shirt $18 and Red Wing work boots $225. The same ensemble, made up of imports, was a bargain. Gap classic blue jeans cost $60, a white Hanes T-shirt $6 and Brahma-brand work boots from Wal-Mart $33. Total: $99. The homegrown purchases were more than four times as much.
That said, made-in-U.S.A. gestures resonate with the American public and have for a while -- a sentiment Trump is homing in on. In 2013, Apple said it would assemble its MacPro personal computer in Texas, instead of China where most of the company's products are manufactured.
The counter-argument to all the gloom and doom about losing jobs to cheaper climes is that the U.S. still has the world's highest productivity. And the new abundance of U.S. energy sources has helped boost Americans' economic output. Indeed, manufacturing, making up some 12 percent of U.S. GDP, has nudged up a bit of late.
As a result, the factory cost difference may be narrowing, which has nothing to do with politicians' fulminations. A report by Boston Consulting Group found that for every $1 it takes to manufacture something in the U.S., the cost is now 97 cents for China. That's up from 85 cents in 2004, partly aided by wage escalation there.
Would Trump enact such draconian policies as imposing a stiff tariff on imports -- and how much? The answer is difficult to fathom. As always with Trump, facts are an elusive commodity.
Example: In the most recent Republican debate, he slammed The New York Times for supposedly misstating the amount of the tariff he wants, as 45 percent of a product. "They are always wrong," he said about the paper. Unfortunately for Trump, the Times had a recording of him saying he wanted 45 percent.
But two facts do remain: Many Americans are upset over the larger question of losing jobs to cheap offshore labor. And forcing more domestic production of some goods would cost U.S. consumers dearly.