Dear Thinker:

I gave a talk the other night about growing income inequality in the USA.  The next day, the Wall Street Journal published the article below my signature about electronics work outsourced to contract manufactures in China by Apple and other American firms.  I was struck by this photo in the article:

The photo brought me back to circa 1990, when I was consulting with a contract manufacturer in Huntsville, Alabama, which made circuit boards and other electronic innards for IBM personal computers, which were assembled at the time in Florida.  In 1995, IBM sold its personal computer division to the Chinese company, Lenovo.

The "factory" floor of the Huntsville operation resembled the above photo:  rows of Asian women working at long benches, manually inserting tiny components and soldering connections.  Most of them were Vietnamese and from families that had escaped their homeland after the Communist takeover, after the USA had conceded the Vietnam War and pulled out its troops.  Many of the "boat people" settled along the Gulf Coast to engage in the one occupation they knew:  fishing.  At the time, this caused a backlash among native-born American fishermen. 

The women met the requirements for the work at the Huntsville operation.  They had tiny hands, dexterity, a high tolerance for monotonous work, and a work ethic missing from native-born Americans.  Also unlike many native-born Americans, they also were drug-free and reticent to sue their employer over imagined grievances.  They were paid slightly above the minimum wage, due to the thin profit margins in contract manufacturing and to the high cost of employee benefits and FICA taxes, a problem that has gone mostly unnoticed by the American media.  (In 1997, the WSJ published an article of mine detailing the hidden cost of employee benefits, which had risen from 17% of compensation in 1955 to 40% in 1997.)

Most Americans probably think of auto and steel plants when they think of manufacturing.  But in the age of electronics, much of the work resembles the work in the photo.  Sadly, the wide income gap in America won't be narrowed by bringing back such jobs.  Even more sadly, this huge problem and dilemma is beyond the ken of the lawyers and plutocrats and apparatchiks who dominate our government to understand and solve.  And young Americans who love their iPhones are clueless about where and how they are manufactured.    

Regards,
Mencken's Ghost

A Snag in Donald Trump's Pledge to Make America Make Again: Asia

China's workers and region's supply chain are integral to electronics manufacturing

By

KATHY CHU and

JURO OSAWA

The Wall Street Journal, Updated Nov. 16, 2016 5:47 p.m. ET

HONG KONG—Asia's sophisticated electronics supply chain and massive labor pool are two obstacles standing in the way of President-elect Donald Trump's pledge to make U.S. companies bring manufacturing jobs home.

When Jabil Circuit Inc., the world's third-largest contract manufacturer by revenue, needed to quickly ramp up production of its electronics components a few years ago, the company was able to add 35,000 workers in China in less than six weeks.

"In no other country can you scale up so quickly," said John Dulchinos, vice president of digital manufacturing at Jabil, a St. Petersburg, Fla., supplier to companies such as AppleInc. and Electrolux SA. "You have the ability to move quickly and there's a really strong electronics supply chain in Asia centered around China."

Jabil's experience underscores the integral roles of China's armies of migrant workers and Asia's decades-old supply chain in global electronics production. It is an issue Mr. Trump will need to address if he wants to bring large-scale production back to a U.S. economy that Washington, D.C. think tank Economic Policy Institute estimates has lost more than 5.4 million manufacturing jobs and 82,000 factories between 1997 and 2013.

"I'm going to get Apple to start making their computers and their iPhones on our land, not in China," Mr. Trump said in March, a theme he repeated throughout his campaign. "How does it help us when they make it in China?"

The president elect has threatened to impose a 45% tariff on Chinese imports to the country. This move could hurt companies manufacturing in China such as Apple, Dell Technologies, and HP Inc. It would drag down China's GDP by 4.8% and Chinese exports to the U.S. by 87% in three years, according to Daiwa Capital Markets Hong Kong's Kevin Lai.

To be sure, there is uncertainty as to whether Mr. Trump will tone down his campaign rhetoric as president. He has indicated potential for compromise in other policy points since his election last week.

A stiff tariff on Chinese imports could accelerate the migration of electronics factories from China to lower-cost Asian countries like Vietnam, rather than boosting U.S. electronics production, some analysts warn.

Apple, in a statement, said it has created more than two million jobs in the U.S. for engineers, retail and call-center employees and delivery drivers. The company said it works with more than 8,000 suppliers in the U.S. and is "investing heavily in American jobs and innovation."

HP declined to comment. A Dell spokesman said the company looks forward to working closely with the new administration on "priority IT issues like security, trade and cloud computing."

While U.S. electronics companies already manufacture high-end, lower-volume products such as the Apple Mac Pro in the country, President Obama and Sen. Bernie Sanders have questioned whether mass-produced electronics—and specifically the ever-popular iPhone—can also be made profitably in the U.S.

The answer, experts say, is that while iPhone assembly in the U.S. is theoretically possible, it is highly improbable because of the difficulty of relocating assembly and other parts of Asia's sprawling electronics chain to the West.

While iPhones are designed in California, Apple sources memory chips from Korean suppliers and displays—which are the most expensive component in the iPhone—from Japanese suppliers, then uses Taiwanese companies such as Hon Hai Precision IndustryCo. and Pegatron Corp. to assemble iPhones in mainland China. Apple also uses U.S. suppliers to make components such as glass and radio-frequency parts in the country.

Mr. Trump "wouldn't be able to finish (such a move) during his presidency," said Sanford C. Bernstein's Alberto Moel.

Another barrier to moving manufacturing back to the U.S. is that U.S. electronics companies often outsource production, so they don't always have full control over where their goods are made.

With China now the world's largest consumer market for smartphones and other gadgets, it makes sense for U.S. companies and their assemblers to keep manufacturing bases in Asia, says Steve Chuang, chairman of the Hong Kong Electronics Industry Council, which represents manufacturers in mainland China. Some manufacturing jobs done in China with human labor could be lost to machines if production moves back to the U.S., economists warn.

Last December, Apple Chief Executive Tim Cook said on the CBS program "60 Minutes" that the company manufactures its products in China in part because Chinese workers possess "vocational kind of skills" increasingly difficult to find in the U.S. "That is the reality," Mr. Cook said.

Even if Apple finds enough workers to assemble in the U.S., the cost of making an Apple iPhone 7 could increase $30 to $40, estimates Jason Dedrick, a professor at the School of Information Studies at Syracuse University. Since labor accounts for only a small part of an electronic device's overall costs, most of these higher expenses would come from shipping parts to the U.S.

If the iPhone components were also made in the U.S., the device's costs could climb up to $90, according to Mr. Dedrick's research with UC Berkeley's Greg Linden and UC Irvine's Ken Kraemer. That means that, if Apple chose to pass along all these costs to consumers, the device's retail price could climb about 14%.

—Eva Dou, Anjie Zheng and Robert McMillan contributed to this article.

Write to Kathy Chu at kathy.chu@wsj.com and Juro Osawa at juro.osawa@wsj.com