Can Trump bring iPhone factories back to the U.S.?
Repatriation would be costly for consumers, automation would limit creation of jobs
SAN JOSE, CALIF.— When Pat McIntyre’s company started making its smart sprinkler system 10 years ago, ETwater’s production was done in China, where labour costs were cheaper.
Today, the company, based in the Bay Area city of Novato, Calif., does its manufacturing at a production facility in Silicon Valley’s Santa Clara. Although McIntyre’s costs initially went up by10 to15 per cent, thanks to automation, his new factory is much more efficient. It also employs far fewer workers. As U.S. President Donald Trump pushes companies to make more products in the U.S., firms like ETwater and Tesla, which rely heavily on automation, illustrate that it can be done in some industries.
But even if more Bay Area companies start making products in the U.S., experts in manufacturing and job creation say Trump’s pledge to tax offshore manufacturing isn’t likely to produce a boom in old-style factory jobs. And despite rising labour costs in China, it’s still cheaper for Apple — and consumers — to build smartphones overseas.
“The success of Tesla is a good example that you can bring manufacturing back to this country, for sure,” said Venky Ganesan, managing director of Menlo Ventures and chairperson of the board of the National Venture Capital Association. “But don’t expect it to create a tremendous amount of jobs.”
Since winning the U.S. election, Trump has doubled down on his campaign promise to tax companies that make products overseas and ship them to the U.S., meeting with tech and auto executives last week to talk tariffs. Last week, the White House announced a new Manufacturing Jobs Initiative, which will tap tech leaders, including Tesla CEO Elon Musk, Intel CEO Brian Krzanich and Dell Technologies CEO Michael Dell. Trump has also promised to ease regulations in the U.S. as an incentive for companies to bring production here.
But not all tech gadgets are good candidates to return home.
“The question everyone seems to be asking is: Will the iPhones come back?” said Andy Tsay, a business professor at Santa Clara University who specializes in global manufacturing. “My answer is: there’s not a good economic reason for it.”
Trump has pressured Apple CEO Tim Cook to make iPhones in the U.S., but the smartphone manufacturing industry is already entrenched in China. Everything from the companies that make smartphone components to the technicians who repair the factory machines is there, Tsay said, and moving that massive ecosystem to the U.S. would be a costly and time-consuming endeavour.
Some of that cost would be passed on to consumers. The price of a $749 (U.S.) iPhone 6s, for example, would increase between $30 and $40 if Apple assembled the product closer to its Cupertino, Calif., headquarters, according to a report by the MIT Technology Review. If its components were also made in the U.S., the price likely would go up by $100.
The auto industry faces a similar problem, AutoPacific analyst Dave Sullivan said.
Union workers at U.S. auto manufacturing plants make almost $50 an hour, he said, compared to $7 or $8 in Mexico.
“There’s a lot working against the
“The success of Tesla is a good example that you can bring manufacturing back . . . But don’t expect it to create a tremendous amount of jobs.” VENKY GANESAN CHAIRPERSON OF THE BOARD, NATIONAL VENTURE CAPITAL ASSOCIATION
notion of bringing auto manufacturing back to the U.S.,” he said.
U.S. companies with overseas factories risk being demonized by the president on Twitter and watching their stock prices plunge as a result. But at least one global company appears to be taking advantage of Trump’s agenda. Taiwanese Foxconn, which makes iPhones and other electronics, is reportedly considering spending more than $7 billion to open a display-making plant in the U.S.
Now companies in emerging Silicon Valley-centred fields, such as autonomous vehicles and artificial intelligence, are primed to open local factories for everything from the cars themselves to the semiconductors that go in those cars, to the cameras and other sensors used by AI technology, said Peter Leroe-Munoz, vice-president of technology and innovation for the Silicon Valley Leadership Group.
“I really see these emerging companies being localized here in Silicon Valley,” he said. “It’s going to make more and more economic sense to build, produce and ultimately sell in the same marketplace as where your expertise and ultimately your consumer base is.”
And labour costs are rising in Chinese cities, such as Beijing and Shanghai, after years of U.S. companies pumping money into the local economies, Tsay said, making it less enticing for companies to build factories there.
Chinese factories also tend to be less productive, while U.S. plants rely more on automation and require fewer human workers. At Tesla’s Fremont, Calif., factory, for example, which moved into an old Toyota plant in 2010, a combination of robots and skilled technicians and engineers replaced many of the bluecollar labourers who used to build Toyotas there. Tesla says it employs more than 6,000 people at the factory, including former workers who were retrained.
ETwater started production of its smart sprinkler system in 2006 in China because it was cheaper, McIntyre said. In 2009, the average manufacturing worker in the U.S. made $34.19 an hour, compared to $1.74 in China, according to the most recent data available from the U.S. Bureau of Labour Statistics. But having a factory so far away made quality control difficult, McIntyre said.
ETwater began transitioning to a Santa Clara factory in 2010. While the Chinese plant employed hundreds, McIntyre said, the more-automated Santa Clara factory has about 50. After the move, the number of sprinklers returned by unhappy customers was cut in half.
“If there is a quality issue, we’re there,” McIntyre said. “We can work collaboratively with our engineers.”