The Real Reason American Manufacturing Jobs Have Gone Overseas

There was a great post everyone was talking about in the New York Times this weekend that highlighted why the U.S. is loosing manufacturing jobs to Asian countries by the boatload. It turns out low labor costs are only a small reason of why American companies choose to manufacture products overseas instead of the United States.

The post focused on Apple, an iconic American brand known around the world and Foxconn, a manufacturing powerhouse that employs over 1 million people worldwide and actually makes the devices for companies such as Apple, Amazon, Dell, HP, Motorola and several others. Even though many executives that work for American companies in the U.S. would rather manufacture their products at home, they say the U.S. simply can’t compete with foreign countries anymore. They cite lack of technical skills needed, that companies in the U.S. are slow and less efficient than those overseas and that workers in foreign countries are willing to work harder and longer hours. The worst part of American workers essentially being stupider, slower and lazier than our counterparts in foreign countries is that the entire supply chain for most finished products is now on the other side of the world.

Hundreds of smaller pieces go into an iPhone, iPad and other electronic devices we all use and love. If these finished products are going to be made efficiently at the lowest possible price all the production input manufacturers need to be close to one another and right now most are in China. Even if hardware manufacturers that sell a finished product wanted to manufacture in the U.S. the challenge goes far beyond labor costs because it’s extremely difficult to coordinate the logistics of the hundreds of smaller inputs that go into a finished product such as an iPhone.

Although middle class Americans suffer when economies transition such as those from an agricultural economy to a manufacturing one or manufacturing to an information age, we are now faced with a much larger challenge, which is the huge increase in labor force. Americans have never had to compete with the hundreds of millions of workers in the Chinese labor force that twenty or thirty years ago were walled off from the global economy. The workforce in China, India and other newly industrialized countries countries dwarf the entire U.S. population and they are willing to work under much stricter conditions than we are used to working in.

The only external factor that has been positive for Americans that has slowed manufacturing jobs from going overseas much quicker than it has is high transportation costs thanks in large part to expensive fuel. While it’s important for the entire supply chain of a finished product to be close to each other it’s also important to be close to your customers. That’s why perhaps Foxconn has opened a huge facility just outside of Juarez, Mexico literally less than half a mile South of the U.S. border.

It will be a challenge for these manufacturing jobs to come back to the U.S. although many manufacturing plants never left the U.S. because unless companies produce products on a huge scale such as Apple, it still makes sense to manufacture close to where your customers are. It’s expensive to have a company on the other side of the world manufacture a product to exact specifications and have it shipped on time.

The U.S. can’t compete with the efficiency of the productive workforce around the world alone. We can fix our schools and invest in technology but if we are going to compete with the rest of the world we need to work with our trading partners in North America. Mexico, for example offers a less expensive workforce than in the U.S. which is why many companies in the U.S and around the world have set up shop in cities along the Northern border of Mexico. If a manufacturing plant is going to move to another country it’s better that they operate in a country that borders the U.S. so that the opportunity still exists for American companies to be involved in the supply chain of a finished product. There is no excuse why Canada, the United States and Mexico shouldn’t be able to produce everything we need in North America and then still export products to foreign countries.

You can read the full article, “How the U.S. Lost Out On iPhone Work” in the NY Times here.

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