Drop ‘Made in’ labels: They’re a major reason for today’s trade war

It is estimated that a car has some 30,000 parts (counting everything from its engine block to nuts and bolts). The firm that provides a car’s marque (like Dodge or Toyota) manufactures only a fraction of these parts in plants spread around the world. 

Several intermediate parts like tires, windshields, seats and mirrors, plus hundreds of smaller items, including electronics, are made by suppliers—many with names that people have never heard of—that themselves are scattered around the world.

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A 2009 documentary called Global Car dissects the production of a single small item: the radiator cap for the Dodge Ram truck. It is designed in the UK, its metal components are mined and cast in Germany, sent for machining to the UK, thenceforth to Chennai to add plastic components, onward to Tennessee for placement in the engine, which is then sent to Mexico for final assembly. The finished car is sent back to the US for sale. Can we really identify where the radiator cap was ‘made’? How can we possibly say where the car itself was ‘made’?

Global supply chains like this are ubiquitous in many industries, from apparel to consumer electronics. Advances in transportation, especially shipping, have led to the creation of massive container ships: the largest ones today are 30 times larger than they were in the 1960s and eight times larger than as recently as the 1990s. This has vastly reduced the cost of transportation. 

Moreover, the information and communication technology revolution allows production and supply chains to be ‘chopped up’ into ever smaller pieces by enabling ever faster real-time management of data, design and product flow across the globe. This is at the core of the core of globalization.

Apple is considered a master of supply chain management. The iPhone is arguably one of the most profitable products ever made. Apple guards its supply chain secrets closely, but experts who have poked through what data are available conclude that the profit margin on each iPhone is in a range of 50-60%. 

The cost to make one is distributed between design and marketing inputs primarily from the US, component inputs from South Korea, Japan and Taiwan, and labour inputs from China (where, till recently, almost all iPhones were assembled). How much does Chinese labour add to the cost of the iPhone? About 2%, or $20 for a product that sells for $1,000.

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Yet, the iPhone is mostly seen to be ‘made in China.’ No matter that the cost of design and marketing (both done in the US) and components like microchips and cameras simply dwarf assembly costs. No matter that the outsized profits from the phone go largely to US-based shareholders. 

It is likely that more than 80% of the $1,000 a customer pays for the iPhone stays in the US: in the form of dividends and bonuses, and wages for designers, brand managers, marketers and store employees. But what people see and what manipulative politicians point their fingers at is its assembly in China, so tariffs on China-assembled phones look attractive to the uninformed.

The economic advisors of political leaders are not uninformed. They surely know that adding a tax of $100 or $200 on a product to punish $20 worth of labour changes nothing but the cost to the consumer. They pay more for the same thing; therefore, they are likely to buy less of it. Fewer phones sold means lower dividends, bonuses and wages in America. If the goal of tariffs is to force iPhone assembly to relocate to the US, is that likely to happen? 

It could, if a full-scale trade war erupts with tariff barriers erected for all trading partners. That would likely lead to a dystopian scenario in which all manufacturing for the US market gets ‘onshored,’ although America simply doesn’t have enough workers to do all the work. Worst case prognosis: goodbye globalization, hello North Korea.

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What if the general public actually knew the facts about the prices of products like iPhones? What if, like food labelling (so much salt, so much sugar, so much iron, etc), cars, phones and designer sneakers carried information labels on their origin based on wage shares paid in different countries (so much to China, so much to the US, so much to Canada, etc)? This is unlikely to ever happen, but if the government made it mandatory to declare this information, it could be done (at some cost). 

The iPhone could then be seen clearly as an American product, not ‘assembled in’ but effectively ‘made in America.’ A pair of Levi’s jeans sewed in Bangladesh and Nike sneakers put together in Indonesia would also be seen as American-made products. Would that diminish some of the nationalist xenophobia driving current US policy?

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One problem with trade is that it is hard to explain its benefits to lay people. Ideas like comparative advantage, opportunity cost and consumer surplus can’t be communicated with memes and jokes. Even skilful speakers like Barack Obama have been unable to do it. It seems to defy common sense. The ‘made in’ label’s misleading information only makes things worse. Maybe the time has come to simply drop that label. Let’s just call it ‘made on planet earth.’

The author is a professor of geography, environment and urban studies and director of global studies at Temple University.