Recommended by Ricochet Members Created with Sketch. Unwind from China? Can It Be Done?

 

This is a subject that has come up first in the comments with the @jameslileks post “Watching the CCP Press,” and which @iWe explored further by asking “whether one would trade with Nazi Germany.” We need additional information, indeed hard data, to even begin to look at the practicalities. Some here have mandated that we somehow absolutely cease trade with China. Others (and indeed most, I should think) would argue that an absolute embargo is both undesirable, and indeed impossible in any situation short of open warfare, but that we should certainly reevaluate what we are trading with China, and how we are doing so.

But to even have that discussion we need to know something of the extent of what we buy from China (and really, from everywhere else too), and how that really affects us, otherwise, should the absolutists be granted their immediate wish and all trade cease, the results may be distinctly unpleasant. I own and run a company that manufactures electronics, and so, at least as far as electronics go, I do have rather a lot of insight into what exactly comes out of China, and whether alternatives exist. I have done a Country of Origin query on the bills of materials (BOMs) for a couple of my products, and will detail those below, and what the implications are.

Product 1:

Product one has a total of 27 separate parts, with 16 unique component types (i.e., several are used multiple times).

  • It uses 4 different resistor values, and a variable potentiometer (an adjustable resistor). The fixed resistors are made in Israel, the pot is made in Japan. There are substitutes made in Japan, China, Taiwan. Resistors are commodity parts.
  • It uses a single capacitor, which is made in Japan. This is a specialized part, sole source.
  • It uses 1 schottky diode and 1 zener diode. These are commodity parts, but 90% of these are now made in China, with the rest made in Taiwan.
  • It uses a transorb made in Morocco (with dies made in Europe)
  • It uses a single 8-bit microcontroller made by NXP (who bought out Freescale, who was spun out of the ruins of Motorola in the early 2000s) in Taiwan. This is a sole-source part.
  • It uses a single power MOSFET. This is made in Malaysia, but the dies actually come from Europe.
  • It uses several stamped and plated brass terminals. These are made in Pennsylvania.
  • The circuit board is made in Illinois.
  • The aluminum enclosure is made 20 minutes from my shop (and ask Alcoa where the metal came from).
  • The adhesives holding it together are made in Cleveland, Ohio.

Product 2:

Product 2 has 42 different components, with 27 unique part numbers.

  • It uses 3 different resistor values. The resistors are made in Israel (see above).
  • It uses 4 different values of resistor arrays. The arrays are made in Japan.
  • It has 1 tantalum capacitor, which is made in El Salvador (but others in this same series are made all over the place).
  • It has 3 different ceramic capacitor types, which are made in Malaysia and China.
  • It has a capacitor array which is made in Mexico.
  • Same diodes as above.
  • Same transorb as above.
  • Transorb array also made in Morocco (with dies from Italy)
  • All LEDs come from China (China has basically cornered the world market on LEDs).
  • The microprocessor was assembled in the Philippines, and while I do not know for certain where the die came from, I’m guessing Europe.
  • The OpAmp was assembled in Malaysia, but the die came from the USA.
  • The regulator came from Mexico
  • The power MOSFET came from China (sole source, no other options available)
  • The connector came from Mexico
  • The circuit board from India
  • The plastic case from a local plastics shop
  • The adhesives from Cleveland and New York
  • The wiring harness assembly came from China (I could have gone domestic, but at 4x the cost, which for this type of product would price me out of the market).

Okay, this doesn’t look too bad, right? And we’re assembling this all here in Ohio too. But that is not the end of the story.

During the COVID wave’s first crash through China, a number of component manufacturers started putting out ECNs (engineering change notices) when they could not obtain needed materials or supplies from China. Most of the components listed above ship on what look like rolls of movie film, with the parts in tiny pockets on the miles of tape. There is always a clear-plastic cover tape running over the pockets to keep things in place too. The tape material ranges from paper to plastic. And these reels of parts themselves are shipped either singly or in stacks in cardboard sleeves and boxes. Turns out that Wuhan is one of China’s paper hubs, and they were making the cardboard that plants all over the region were using, and when then was unavailable then other sources had to be found in a hurry, and then (this being a high precision field) qualified. Delayed some parts shipments by weeks, or even months. Some of the plastics too came from China, though plastics (unlike forests of trees) are fungible and rather easily sourced.

Diodes are very old technology — they predate (and indeed made possible) the radio — so unwinding that from China is theoretically easily feasible, but economically senseless at the moment. Yes, you could adapt Intel’s state-of-the-art fabs here in the US to made diodes by the billions if you needed to (and do so quickly), but they have most of the world market on high-end computer CPUs, and it’s better that they continue to focus on those. Everything else on my list that comes from China? It’s either old-tech too, or (like the wiring harness) labor-intensive. No US or Mexican cable house could come close to China’s prices on those, and that harness’s cost is already is 50% of the product cost — going domestic would force me to raise prices to an uncompetitive level. Only other option there would be putting in my own harness shop, but that would require me to hire another 5 people, and/or make a capital equipment investment in highly automated cut-strip-terminate-insert equipment (well into the six figures) — I don’t make enough other wiring harnesses to ever pay for that.

Mind you, this is just a microcosm of worldwide manufacturing, and I did not even touch on the raw materials used in these parts (Conflict Minerals regulations mandate I trace those too, by the way), which come from all over the world. Tantalum, a material used in high-precision small capacitors, only comes from 2 major regions of the world: Russia and Congo. A lot of the world’s tungsten comes from China. Put simply, the further upstream you go in the supply chain, the murkier the origins get, and the more the sources cross paths back and forth with each other.

The Chinese government is tyrannical. The CCP is immoral. They are a strange and frightening blend of Maoism, Nazism, and Wilhelmine vainglory — a sort of horrific reincarnation colonial-era Europe with modern methods. Can we totally embargo them? Not anytime soon, and not if you insist on keeping your current standards of living and disposable income. China took over 20 years to get where it is in the world economy, and goods and services ebb and flow through there more than you might guess. Should we reconsider what we buy from China, what we sell to China, and how much control they have? Absolutely; you’d be amazed to learn what US companies are owned by Chinese fronts now. But before you attempt anything drastic, take some time to learn where the things you use and rely on every day actually come from — a total embargo now could leave you in the dark and stuck at home.

Trade is complex, and attempts to control it too heavily always are disasters.

Published in Economics
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  1. namlliT noD Member
    namlliT noD Joined in the first year of Ricochet Ricochet Charter Member

    (Electrical engineer here… I’ve just got to say, it’s a delight to see this level of real-world expertise and analysis in a post.)

    • #1
    • May 28, 2020, at 9:30 AM PDT
    • 20 likes
  2. Locke On Member

    We need to do this, but it’s a long term effort. Not something that can be done successfully or sanely with the wave of a regulatory wand, Trump’s or anyone else’s.

    Your examples suggest that trying to bring low value add components and manufacturing steps back on shore is a loser. Better to help ‘up skill’ economies that can compete with China on price – so much the better if they are geopolitical opponents of China.

    Doesn’t sound like you are a large scale producer, but that is something that high volume companies **cough** Apple **cough** could and should pursue proactively.

    • #2
    • May 28, 2020, at 10:03 AM PDT
    • 2 likes
    • This comment has been edited.
  3. Bob Thompson Member

    SkipSul:

     

    But to even have that discussion we need to know something of the extent of what we buy from China (and really, from everywhere else too), and how that really affects us, otherwise, should the absolutists be granted their immediate wish and all trade cease, the results may be distinctly unpleasant.

    Good article and viewpoint. I’ll never have the insight you do from your work. The best I can do is express my own view through my vote and communications with representatives that I support a free market consistent with preserving America’s future prosperous and free existence. I’ll try to make my vote count in a way that enables those people to have the desirable policies in place.

    • #3
    • May 28, 2020, at 10:11 AM PDT
    • 3 likes
  4. SkipSul Coolidge
    SkipSul Joined in the first year of Ricochet Ricochet Charter Member

    Locke On (View Comment):

    We need to do this, but it’s a long term effort. Not something that can be done successfully or sanely with the wave of a regulatory want, Trump’s or anyone else’s.

    Your examples suggest that trying to bring low value add components and manufacturing steps back on shore is a loser. Better to help ‘up skill’ economies that can compete with China on price – so much the better if they are geopolitical opponents of China.

    Doesn’t sound like you are a large scale producer, but that is something that high value companies **cough** Apple **cough** could and should pursue proactively.

    Exactly. The US is a regulatory morass – not nearly as bad as Europe, not even close, but still objectively bad. Our taxes are unbalanced, our labor laws are overprotective, our liability laws are insane, and California’s own laws are approaching European levels of asininity. If that is not fixed, tariffs on China won’t bring much of value back here (and don’t even get me started on freight subsidies – it’s cheaper for an Australian to send a package to me than it is for me to export one back to him, while China gets massive subsidies from us on cheap goods).

    But if we encourage other nations to compete against China? That’s a win-win for us. We can keep making the big expensive high-tech stuff, while making the worldwide supply chain far more resilient, redundant, and competitive, while also making those other countries richer, more settled, and better off. But we’d better hurry – China is already playing that game, but playing it dirty.

    • #4
    • May 28, 2020, at 10:12 AM PDT
    • 12 likes
  5. Gumby Mark (R-Meth Lab of Demo… Thatcher

    Great post and analysis. I worked for a company with a global supply chain and the complexity was mind-boggling. Some of our bigger industrial equipment had thousands of separate parts (the largest I remember was 60,000). Unwinding this, which I think the right thing, will take years. And China will not sit still as this happens.

    Another part of the equation is our financial entanglement with China and how to best undo it. Chinese firms are now listed on the NYSE and other exchanges and the folks who know this area say all of these companies use fraudulent accounting. Federal and state pension funds invest in Chinese owned companies as do many American private investment funds. And even “independent” Chinese companies will do what their government wants. It’s the flip side of Western companies doing business in China. If you notice they will be more vocal objecting to their own governments than to China, because they know China is tougher and a lot more willing to retaliate than any Western government.

    And for all of this we will need allies. Fortunately, between Covid and China’s heavy handed global reaction it is doing a good job alienating a lot of people.

    • #5
    • May 28, 2020, at 10:35 AM PDT
    • 6 likes
  6. namlliT noD Member
    namlliT noD Joined in the first year of Ricochet Ricochet Charter Member

    Also check out Carol Roth’s recent podcast episode, Re-Shoring Manufacturing for Security, with @hackmanj . It’s quite good.

    Hey @skipsul , can you demo a Pick and Place Machine for us? (“mind = blown” as the kids used to say.)

    • #6
    • May 28, 2020, at 10:52 AM PDT
    • 2 likes
    • This comment has been edited.
  7. SkipSul Coolidge
    SkipSul Joined in the first year of Ricochet Ricochet Charter Member

    namlliT noD (View Comment):

    Also check out Carol Roth’s recent podcast episode, Re-Shoring Manufacturing for Security, with @hackmanj . It’s quite good.

    Hey @skipsul , can you demo off a Pick and Place Machine for us? (“mind = blown” as the kids used to say.)

    I should someday shoot some video of our line, but I hate to put it “out there” both because I’m not keen to show off proprietary products (rip-offs are a problem), and because I use a pseudonym here to keep my business at arms’ length away from politics.

    The PnP line is hypnotic to watch though.

    • #7
    • May 28, 2020, at 10:56 AM PDT
    • 4 likes
  8. SkipSul Coolidge
    SkipSul Joined in the first year of Ricochet Ricochet Charter Member

    This is not our line or machine, but we have one just like it.

    • #8
    • May 28, 2020, at 10:58 AM PDT
    • 8 likes
  9. SkipSul Coolidge
    SkipSul Joined in the first year of Ricochet Ricochet Charter Member

    Here is a full line doing its thing (again, not ours, but with very similar equipment to ours).

    • #9
    • May 28, 2020, at 11:01 AM PDT
    • 4 likes
  10. Gary Robbins Reagan

    Amen to this post. Thank you for talking about some of the detail of the issue facing us.

    • #10
    • May 28, 2020, at 11:02 AM PDT
    • 4 likes
  11. namlliT noD Member
    namlliT noD Joined in the first year of Ricochet Ricochet Charter Member

    SkipSul (View Comment):
    Here is a full line doing its thing

    Oh baby… 

    Manufacturing pron right here.

    Folks, this is an enormous number of tiny individual components, many the size of a pencil point, being pulled off their feed rolls and placed on a pc board with incredible precision, at a rate of, I dunno, maybe 15 a second or so.

    To maximize throughput, the machine picks up a number of components at once in parallel.

    …And as I like to say, robots in China are not significantly cheaper than robots here.

     

    • #11
    • May 28, 2020, at 11:13 AM PDT
    • 10 likes
  12. Gary Robbins Reagan

    Gary Robbins (View Comment):

    Amen to this post. Thank you for talking about some of the detail of the issue facing us.

    After writing my comment, I went back to find out who had filled in the comments 8 & 9. I couldn’t find the post. Why? Because it had already been moved to the Main Feed. 

    Good job to the Jon and/or Bethany for elevating this great post, and Doug Watt’s great post so quickly to the Main Feed. Both posts are timely and written by authors who know what they are talking about.

    • #12
    • May 28, 2020, at 11:15 AM PDT
    • 2 likes
  13. SkipSul Coolidge
    SkipSul Joined in the first year of Ricochet Ricochet Charter Member

    namlliT noD (View Comment):

    SkipSul (View Comment):
    Here is a full line doing its thing

    Oh baby…

    Manufacturing pron right here.

    Folks, this is an enormous number of tiny individual components, many the size of a pencil point, being pulled off their feed rolls and placed on a pc board with incredible precision, at a rate of, I dunno, maybe 15 a second or so.

    To maximize throughput, the machine picks up a number of components at once in parallel.

    …And as I like to say, robots in China are not significantly cheaper than robots here.

     

    I have 1 guy to run my line. He can run more in a day than my father’s all manual labor shop could do with similar products in the 90s during an entire week.

    Our newer PNP placer can do, going full whack, about 8000 parts an hour, our older one can do about 6k.

    • #13
    • May 28, 2020, at 11:32 AM PDT
    • 8 likes
  14. Unsk Member

    Can we totally embargo them? Not anytime soon, and not if you insist on keeping your current standards of living and disposable income.

    But if we don’t massively embargo most of what we buy from them we will be over-run. China has already taken off the gloves. It is no longer even claiming to be playing by the rules. China is going to react to our every move. China’s inflammation of the COVID crisis was purposeful and shows how far they are willing to go to destroy us. It may be possible for a while to selectively tariff China on certain products but you all need to be prepared for the strong possibility that China will not play ball and will demand a full Kowtow from the entire world. 

    Secondly, hate to break it to you guys but our standards of living have already been gutted by China. We will not be going back to anywhere near where we were anytime soon. The only way back is to cut them off in the end and build critical components here or in a friendly nation. We need to heavily invest with tax breaks and subsidies into high tech robotic manufacturing of critical components that are made at a low cost elsewhere. We need to insure critical raw materials are available to us. The loss in the standard of living due to supply chain problems of products made in China will hurt but in terms of the overall damage to our economy it may not be that big, if we can offset that loss with new manufacturing here. What will hurt is if we do not get our economy back substantially on it’s feet soon and you can count on the Chinese and their bought and paid for Corporate allies to try to screw our recovery up. Trump should declare economic war and use his powers to bring back manufacturing critical of our nation here like he has with pharmaceuticals. 

    But if we encourage other nations to compete against China?…..But we’d better hurry – China is already playing that game, but playing it dirty. 

    Yep. But you can count on ChiComs applying the screws to any country that doesn’t follow their demanding tune to the letter . In the end, we may have to tariff countries that try to play it both ways and tariff components that are made in China. We are going to face the fact that this is going to be a enormous fight and a very tough, gut wrenching economic war. We are going to need to take the gloves off just like the ChiComs have. The ChiComs have bought already many of the critical supply chain companies in the world. There will be no dancing around that fact. Playing nice with China will come at a tremendous price in the loss of freedoms and economic power, with the all too likely prospect we will be ruined in the end working with them. 

    • #14
    • May 28, 2020, at 11:42 AM PDT
    • 4 likes
    • This comment has been edited.
  15. hackmanj Coolidge

    This is outstanding work, so grateful for @dontillman for bringing it to my attention. I intend to share it throughout my network…

    • #15
    • May 28, 2020, at 12:24 PM PDT
    • 3 likes
  16. namlliT noD Member
    namlliT noD Joined in the first year of Ricochet Ricochet Charter Member

    Unsk (View Comment):
    China has already taken off the gloves. It is no longer even claiming to be playing by the rules.

    I’m going to disagree…

    I think we’ve mostly done this to ourselves. Much of our manufacturing capability has been eliminated by our own excessive regulations, high taxes, EPA regulations, ADA regulations, minimum wage laws, employment requirements, lawsuits, and an overall attitude that we’re moving to a service economy.

    Each trading country is going to play by a different set of rules, that’s understood. But it’s like we’ve been doing everything possible to move manufacturing to China.

    So, before waging war, I think we should get our own act in gear and stop shooting ourselves in the foot.

    Secondly…

    We’re at the cusp of a manufacturing renaissance. The robotics technology is very advanced, like you can see above. AI software will soon be able to link those robots to CAD systems, to logistics, to suppliers, distributors, and optimize the whole operation.

    • #16
    • May 28, 2020, at 12:25 PM PDT
    • 8 likes
  17. Bob Thompson Member

    namlliT noD (View Comment):

    So, before waging war, I think we should get our own act in gear and stop shooting ourselves in the foot.

     

    We can do two things at once, compete economically with China and make sure we take care of our own national interests.

    • #17
    • May 28, 2020, at 12:42 PM PDT
    • 3 likes
  18. SkipSul Coolidge
    SkipSul Joined in the first year of Ricochet Ricochet Charter Member

    namlliT noD (View Comment):

    Unsk (View Comment):
    China has already taken off the gloves. It is no longer even claiming to be playing by the rules.

    I’m going to disagree…

    I think we’ve mostly done this to ourselves. Much of our manufacturing capability has been eliminated by our own excessive regulations, high taxes, EPA regulations, ADA regulations, minimum wage laws, employment requirements, lawsuits, and an overall attitude that we’re moving to a service economy.

    Each trading country is going to play by a different set of rules, that’s understood. But it’s like we’ve been doing everything possible to move manufacturing to China.

    So, before waging war, I think we should get our own act in gear and stop shooting ourselves in the foot.

    Secondly…

    We’re at the cusp of a manufacturing renaissance. The robotics technology is very advanced, like you can see above. AI software will soon be able to link those robots to CAD systems, to logistics, to suppliers, distributors, and optimize the whole operation.

    A comment so nice, I’m liking it twice.

    This is 100% spot-on. Long long before China was a worry we were fretting about Mexico, or Colombia, or southern states poaching textile work from norther states… In each case we had US states, US regulators, US lawmakers ALL killing the goose that was laying golden eggs, then whinging about the job losses afterward.

    • #18
    • May 28, 2020, at 12:53 PM PDT
    • 8 likes
  19. ToryWarWriter Thatcher

    The short term solution is a Tariff, followed by the restoration of the act that prevented high level tech transfer to the Soviet Union.

    • #19
    • May 28, 2020, at 1:03 PM PDT
    • 4 likes
  20. Barfly Member

    I get it – I read I, Pencil long ago and then spent a lifetime making things. That perspective is exactly what tells me that we should put the pedal to the metal when it comes to disengaging with China. This is the time to move fast and break things.

    Predictions like “in the dark and stuck at home” are not responsible, even when prefaced with the qualifier “could”. A forecast that assumes all the current conditions will continue but only one will change (no more sourcing from China) isn’t predictive. It’s akin to those “Life After People” fantasies, or “What if the Moon Disappeared?”

    Lots of things will break. Some will be dealt with quickly, and many others will be found to be superfluous and wasteful. Others will cost more, some a lot more. But there will never be a better time.

    And keep this in mind – no crisis ever goes to waste. There will be winners and losers, and how we respond will determine who they are. Destroying the Chinese Communist Party is a civilizational imperative.

    • #20
    • May 28, 2020, at 1:25 PM PDT
    • 3 likes
  21. Unsk Member

    In each case we had US states, US regulators, US lawmakers ALL killing the goose that was laying golden eggs, then whinging about the job losses afterward.

    Can’t agree more. I’ve been fighting regulators almost my entire adult life. 

    But my comment was about what has happened since.

    Yes, we have to fix our regulatory problems and those problems have had much to do with what the Supreme Court has done to allow property rights to whither to almost nothing. When I am faced with an abusive regulator I know and he knows unless my client wants to spend hundreds of thousands of dollars fighting a multi-year uphill battle for justice that he will probably lose the way the courts have stacked the deck against property rights and how they have protected the regulators, then there is nothing to do but bend over, grin and take it.

    Trump has issued Executive Orders to reduce regulatory ‘red tape” but I think his orders are only effective at the Federal level, we don’t know how effective they will be and much of the regulatory nonsense is nonetheless happening at the State and local levels. We shall see. All that said we may be getting a new Justice on the Supreme Court very soon which could dramatically change the legal game and the reverse the attack on property rights and reduce the power of the Administrative State, which could change everything in manufacturing. 

    But I was talking in my earlier post about how the game has changed with China in the last few months. The idea that we can still play ball with China as in the past doesn’t account for the fact that the game has changed. First of all, before COVID we were winning the trade war big time and Chinese knew it. Their response and their all out exploiting of the COVID crisis was illuminating and exposed them for the very destructive reckless force they really are. It is now apparent they want to destroy us. 

    If we do not take a very hard stance against China, the ChiComs will know they will have won because they know the crap they publicly pulled to obviously and purposely exploit the crisis and will put the screws to us even more. No doubt about it. I am not underestimating the dire consequences from decoupling from China but we really have no choice.

    What Trump does is that he bobs and weaves with the ChiComs to avoid showing his hand, his aims and his game. He puts on a very friendly “Panda” face in public to the ChiComs that infuriates many at home, but don’t be fooled by that gambit, he is moving in the right direction trying to pry as much from them without completely exposing ourselves to the consequences of total decoupling right away. But he is getting very frustrated by their absolutely black hearted actions , and may be bringing the hammer down very soon. 

    • #21
    • May 28, 2020, at 1:25 PM PDT
    • 1 like
  22. SkipSul Coolidge
    SkipSul Joined in the first year of Ricochet Ricochet Charter Member

    Barfly (View Comment):
    I get it – I read I, Pencil long ago and then spent a lifetime making things. That perspective is exactly what tells me that we should put the pedal to the metal when it comes to disengaging with China. This is the time to move fast and break things.

    COVID has rattled everyone, both for the utter dishonesty and “face saving” right out of the gate from China just its own right, but also because it has both shown how unreliable China is, and how dangerous they can be. Plans are afoot across the electronics industry to pull up stakes, reshore, move things around, and in general break away from dependency on China. It is happening, it is real.

    The pace, however, varies greatly depending on which other nations and companies you’re talking about. Some seem utterly unfazed by China and have no problem still cozying up to them (especially Huawei) and these are sadly often the same nations that have no problem cozying up to Putin. Usually, however, these are NOT China’s neighbors.

    The pace also varies with the scale of the investments required to make the move. Some companies are “in too deep” to easily pull back quickly (or at all), others are far more nimble. But the electronics trade journals have been full of chatter about getting out of China since January. Shame it took a pandemic to spur some companies to action, but then again, the pandemic has also provided cover where other companies were already willing but needed to convince investors.

    • #22
    • May 28, 2020, at 1:37 PM PDT
    • 7 likes
  23. SkipSul Coolidge
    SkipSul Joined in the first year of Ricochet Ricochet Charter Member

    Barfly (View Comment):
    Predictions like “in the dark and stuck at home” are not responsible, even when prefaced with the qualifier “could”. A forecast that assumes all the current conditions will continue but only one will change (no more sourcing from China) isn’t predictive. It’s akin to those “Life After People” fantasies, or “What if the Moon Disappeared?”

    Sure, but I have seen iterations of this demand for immediate embargo here on Rico, which is why I wanted to address it. 

    • #23
    • May 28, 2020, at 1:46 PM PDT
    • 2 likes
  24. Percival Thatcher
    Percival Joined in the first year of Ricochet Ricochet Charter Member

    From American Greatness:

    It’s starting to happen—global supply chains are coming back to America.

    The company, Phlow Corporation, will be making drugs used to treat COVID-19. They will be stored in a strategic stockpile of pharmaceutical ingredients to be used in the event of drug shortages or an emergency.

    Those drugs, like so many others, are now made overseas, mostly in China and India. China is the world’s main supplier of the active ingredients used in many common drugs from vitamin C to aspirin.

    • #24
    • May 28, 2020, at 1:52 PM PDT
    • 1 like
  25. David Foster Member
    David Foster Joined in the first year of Ricochet Ricochet Charter Member

    Historically, high American labor costs were an incentive for automation and other forms of productivity improvement, and these productivity improvements enabled further wage increases. If Henry Ford had been able to have cars assembled in Mexico by people earning 3 cents an hour, he might never have needed to bother with the assembly line and the five-dollar day.

    How many productivity-improving technologies would have been installed in US factories over the last 20 years had offshoring to China *not* been an available alternative?

    I was thinking the other day about *watches*…old-fashioned mechanical-type watches…and their sourcing & manufacturing, and did a little research. Circa 1984, the Japanese company Seiko had already introduced some very impressive technology for automated manufacturing of its watches. In 2014, the Swiss company Swatch…which had built its business on low-cost quartz watches…introduced a mechanical watch priced at $155. (US dollars) Switzerland is not exactly a cheap-labor country, so extensive automation of the production process was involved, as well as some product redesign to minimize part count and facilitate assembly. Looks like prices today are as low as, or lower than, that original $155…found some models at WalMart and Amazon for down around $100.

    If mechanical watch assembly can be highly automated, is it really necessary for iWatch and iPhone assembly to be as labor-dependent as it apparently is today? How much of Apple’s insistence on the necessity of China-based manufacturing is actually based on marketing considerations involving the vast Chinese market, rather than issues of pure manufacturing economics, I wonder?

    It is certainly true that we can’t move all manufacturing of US products/components out of China rapidly, and we will never be totally self-contained in manufacturing…but we do need to be moving in the direction of reshoring and work on eliminating obstacles thereto.

    • #25
    • May 28, 2020, at 2:07 PM PDT
    • 1 like
    • This comment has been edited.
  26. Bruce Caward Thatcher
    Bruce Caward Joined in the first year of Ricochet Ricochet Charter Member

    Barfly (View Comment):
    It’s akin to those “Life After People” fantasies, or “What if the Moon Disappeared?”

    I don’t want to take away from this amazing post, or your sturdy point in response.

    But I saw that you happened to reference “Life After People”, which was one of my favorite shows.

    I agree that it was not useful if you were trying to get something prescriptive from it – they weren’t offering remedies for anything. But it was fascinating to see how the demonstrated how much of our daily walk through our modern lives depends on maintenance, constant adjusting and care and resetting every morning and, mostly, keepin’ those pumps running!

    It also showed how quickly nature takes back over. Stop driving on a paved road and in a year plants are growing up through it, in five years every new crack has been taken over. The examples were amazing. I laughed at the Greens’ talk about our despoiling of the planet – we don’t conquer Nature, we fight a just-barely-holding-on battle with Her relentless forces, while she laughs. I live in a marina – the battle is constant.

    • #26
    • May 28, 2020, at 2:34 PM PDT
    • 2 likes
  27. cirby Member

    I’m pretty sure we can bring a lot of low-end manufacturing back to the US, partly because people are pissed at China, but also because a lot of interesting technologies are just getting mature enough to bypass the factories and skills they’ve built up over the years.

    Old-school large-scale manufacturing has changed immensely (see the videos above), but there’s also that pesky “additive manufacturing” issue. The 3D printers we have now are finicky, costly to run (relatively), and not that popular – but when someone pops up with a real “HP printer” equivalent for 3D manufacturing, the revolution will be almost as stark.

    Not to mention what it could do to the housing market, when someone makes practical house-printing machines that can build a home in a day…

    • #27
    • May 28, 2020, at 3:13 PM PDT
    • Like
  28. Barfly Member

    Bruce Caward (View Comment):

    Barfly (View Comment):
    It’s akin to those “Life After People” fantasies, or “What if the Moon Disappeared?”

    I don’t want to take away from this amazing post, or your sturdy point in response.

    But I saw that you happened to reference “Life After People”, which was one of my favorite shows.

    I agree that it was not useful if you were trying to get something prescriptive from it – they weren’t offering remedies for anything. But it was fascinating to see how the demonstrated how much of our daily walk through our modern lives depends on maintenance, constant adjusting and care and resetting every morning and, mostly, keepin’ those pumps running!

    It also showed how quickly nature takes back over. Stop driving on a paved road and in a year plants are growing up through it, in five years every new crack has been taken over. The examples were amazing. I laughed at the Greens’ talk about our despoiling of the planet – we don’t conquer Nature, we fight a just-barely-holding-on battle with Her relentless forces, while she laughs. I live in a marina – the battle is constant.

    I was just referring to the artificiality of removing one isolated factor from the system. The episode I watched did make it plain that we expend huge effort just keeping in place. 

    The point I wanted to make is that dynamic systems change as they operate anyway; it’s their nature. The extensive use of Chinese supplies does not mean any particular part of the economy will fail even if China goes dark in a step function. The profit/survival motive is enough to make the system adapt. 

    • #28
    • May 28, 2020, at 6:42 PM PDT
    • 3 likes
  29. Manny Member

    namlliT noD (View Comment):

    (Electrical engineer here… I’ve just got to say, it’s a delight to see this level of real-world expertise and analysis in a post.)

    I’m a mechanical engineer and it was still enjoyable to read. That said, whatever we can disengage from China we do it. Even 10% will hurt their economy big time.

    • #29
    • May 28, 2020, at 8:38 PM PDT
    • 5 likes
  30. Danny Alexander Member

    Profoundly appreciate the OP and the superb discussion thread it’s prompted!

    I will say that I’m with Unsk, Barfly, and David Foster inasmuch as the VC sector here where I am in the Boston area has historically (over the course of recent history, that is) pushed portfolio companies and would-be portfolio companies to have a ready-to-rumble “China strategy” — for manufacturing sourcing, not for selling into the PRC market itself — as an adjunct to the business plan either right off the bat (when the A-round funding term sheets are being discussed) or pretty much right after the ink is dry on that initial VC paperwork.

    Yeah, in the aggregate that pushing by the VCs — to make China sourcing a foregone conclusion or SOP — is attributable to their being cheap with the monies they dole out to their portfolio companies. And going further back “upstream” in terms of causality, that VC drive to hold down costs is attributable to the aggregate of costs that would have been incurred due to the morass of regulations and similar governmental/legal asininity accompanying a decision to manufacture in the US.

    My point is that Boston-area VCs have been “normalizing” the China manufacturing decision — perhaps for a dozen years or more now — such that it tended not to spark even a flicker of a second thought by any of the parties (in the Boston area) to a high-tech startup’s launch and growth.

    (Or at least one could describe the situation thusly all the way up to the pandemic’s onset.)

    The business of innovation itself being fused at its scale-economy core with a manufacturing base in an adversarial nation as the common-sense rational and profit-optimized way to transform the economic trajectory of the US — wow.

    But that’s the kind of facile-default-strategy thinking that took hold here in the Boston area, and probably in all tech-innovation hubs throughout America. Manufacturing in the US came to be viewed — from the standpoint of the gatekeepers to startup-directed innovation capital — as a unitary black box, a long-ago aggregated set of take-it-or-leave-it Terms & Conditions with its own particular price tag. And by the same token, manufacturing in the PRC also came to be viewed by these same gatekeepers as its own type of black-box proposition, with its own distinctive price point.

    Teasing out and trashing all the malignant, self-defeating domestic regulatory strands from the totality of the various sourcing skeins demands time that we can’t afford to expend in a sequential-execution manner.

    Better *now* to tariff (and where sensible, sanction) the hell out of what needs “re-shoring”, and set about unraveling the problematic regulatory constraints as a parallel-run task set, while simultaneously launching the domestic manufacturing and sourcing anew.

    • #30
    • May 29, 2020, at 1:00 AM PDT
    • 2 likes
    • This comment has been edited.