With “Made in America” becoming a huge election issue, the MIT Technology Review tried to calculate the cost of making an iPhone here. They called it “The All-American iPhone.”
Where are we going? To a $3.6 billion sacrifice.
iPhone Components
If an iPhone were made in the U.S., we would be talking about these components:
iPhone Suppliers
An all-American iPhone 6 would affect hundreds of current suppliers in these countries:
But, naming countries separately obscures what really happens. A company based in South Korea or Japan or Taiwan, for example, outsources to lower cost facilities, perhaps in Malaysia or Thailand. And then, they send components that range from antenna switches to SDRAM memory mostly to China and some to Brazil.
And, we have not even mentioned some of the minerals that are shown in the following section from another amazing infographic called “The Periodic Table of iPhones.”
The All American iPhone
Having a slight idea of the iPhone supply chain, let’s contemplate what happens if it moves here. We should keep in mind that Tim Cook tells us that all estimates about Apple’s costs are far from accurate.
U.S. Final Assembly Only
If the phone is just assembled here, we need only add together the component costs and labor. For the $749 iPhone 6S, we are talking about components that total $230. Add to that labor costs that increase somewhere from $34 to $50 and the MIT people say the consumer price goes up by approximately 5%. (At $38, that sounds very low to me.)
Final Assembly and Component Parts
Next, let’s say that Apple makes all components in the U.S.
Here, the “experts” conclude the phone would cost only $100 more. Sourcing the raw materials in world markets but doing all manufacturing here, it would take some time for Apple to become competitive. But then, the price would not spike considerably.
Our Bottom Line: Opportunity Cost
I do have two final costs that no one mentioned. Please keep in mind that I am using sacrifice as my definition of cost.
If we use our land, labor and capital to make the iPhone in the U.S., then what are we sacrificing? What might we have made with those factor resources?
As for consumer tradeoffs, let’s use some totally inaccurate calculations that still give us an idea of what we are sacrificing. If 36 million iPhones were sold in the U.S. annually, then 36 million times an extra $100 equals $3,600,000,000.00 that consumers could have spent elsewhere! So, when someone says each phone costs an extra $100, think instead $3.6 billion.
My sources and more: Although we can be skeptical about the numbers in the MIT article, still the exercise is worthwhile. Meanwhile, for more about the iPhone supply chain, you might want to return to this econlife post.
The most important issue not mentioned is regulation and NINBYism. If Apple wanted to put a 100,000 employee manufacturing business anywhere in California, the permit time alone would be 5 years or more. In that time, the market window for the product would have changes and someone who could respond to the market faster would own the business, not Apple.
If Apple wants to stay in business, it must go outside the US to respond fast enough to keep up with the rapidly changing markets. When you are talking about actually building something in the US, you enter the world of bureaucratic regulatory reality where every one of the agencies wants to show their power and significance by saying NO. Just the traffic studies, environmental studies, hazardous waste analysis, etc. or even getting tenant improvement permits for existing buildings can take years.
This is why we have huge innovation in all areas of science and tech. but only have decent employment growth in the “permissionless” sectors of the economy like design, software, marketing, etc. that has created most of Silicon Valley’s wealth. Unlike past technology revolutions whose creative destruction put millions of stable boys out of work while creating manufacturing jobs for those workers in areas unvisualized, unregulated, uncontrolled at the time, this revolution is being prevented from creating jobs for the non-educated elite by our government bureaucracy and activist.
It has taken 12 years and counting to get “permissions” to build a desalinization plant in Huntington Beach, Ca to convert seawater into fresh water. That is 12 years of highly paid government bureaucrats, lawyers, planners and experts but no jobs for the average workers who will actually build, operate and maintain the plant.
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