Made in China.
It's a common phrase we see on everything from
clothes to electronics.
China controls the market. And while that's
today's reality, it has not always been the case.
The United States used to be a global leader in
manufacturing, but in 2010, China passed the
U.S. And manufacturing output and has seen
massive growth ever since, going from 3.5% in
1990 to 30.5% in 2021, with the U.S.
Now ranking behind China at 16.8% of global
manufacturing output.
However, in light of supply chain issues
highlighted by the Covid-19 pandemic, a push
to bring manufacturing home to America returned.
Stamping products Made in America.
Made in America.
Made in the USA. The revitalization of
American manufacturing.
While some industries like the semiconductor
industry and the battery market are scrambling to
build new factories across the U.S., tech
giants are not making the same effort to do
that. CNBC wanted to find out why tech giants
aren't making smartphones in America.
We visited one company, which is manufacturing a
phone in the U.S.
to explore what it would take for more phones to
be made in the States.
The history of manufacturing technology
in the U.S. dates back decades way before
smartphones even existed.
The whole concept of manufacturing in the U.S.
was very strong through about the mid 1960s.
We fundamentally gave manufacturing away in the
sixties and seventies and in that timeframe,
Japan expanded, China expanded.
A lot of the other Asian countries expanded.
Today, the supply chain for smartphone
manufacturing lives outside of the U.S., and
big tech companies are heavily involved.
Apple and Alphabet hire and send thousands of
employees abroad to oversee manufacturing.
Prior to Covid, it was very common to send
engineers like myself, maybe 10, 20, 40
engineers at a time to the factory to support
prototyping builds to do that learning and finding
and fixing of issues and be in the right place at
the right time.
In fact, in 2019, Apple was United Airlines
biggest customer, buying 50 business class seats
from San Francisco to Shanghai daily,
accounting for $150 million in annual revenue
for United. This is one reason Anna-Katrina
Shedletsky founded Instrumental.
The startup aims to reduce waste in the
manufacturing process by making it easier to
oversee production remotely.
I started Instrumental with my co-founder, Sam,
because we felt like data provided an
opportunity to be leveraged to solve these
problems much faster, and maybe I wouldn't have
to, as an engineer, go to China every several
weeks for many weeks at a time to find these
issues and try to be in the right place at the
right time.
As new technologies like instrumental emerge to
make it easier to manufacture abroad, there
isn't much incentive for companies to move
factories to America.
Apple has moved some iPhone production to
India, amidst Covid lockdowns in China, and
rising tensions between Washington and Beijing.
One estimate predicts one out of four iPhones
will be made in India by 2025.
So why not move some production to the U.S.
as well? Back in 2012, Apple CEO Tim Cook made
this point.
The consumer electronics world was really never
here. And so it's not a matter of bringing it
back, it's a matter of starting it here.
Then in 2017, he followed up, telling Fortune —
It's an issue of highly skilled labor.
There's a confusion about China that and let me at
least give you my opinion. The popular
conception is that companies come to China
because of low labor cost.
I'm not sure what part of China they go to, but
the truth is China stopped being the low
labor cost country many years ago and that is not
the reason to come to China from a supply point
of view. The reason is because of the skill and
the, the quantity of skill in one location and
the type of skill it is.
With a population of 1.4 billion, China does have
the most undergrads getting science and
engineering degrees globally, but in reality
there is still a difference in the cost of
labor. The U.S.
Federal minimum wage is $7.25.
And while China has no set national minimum wage
and the city of Zhengzhou, where
Foxconn's the largest iPhone plan is located,
the hourly minimum wage is ¥19.6 or less than $3.
We don't know exactly how much the factory workers
are making, but in the early days they had a
wage that was much better than they were
making out in the fields.
Now, as the demand for their products and their
talent has, because they've gotten more
experience, their wages have gone up even more.
And many of the workers who are in the factories
are moving into what we would call their version
of what we would call middle class now.
Foxconn did not respond to a request for comment,
and Apple did not provide a comment on
iPhone worker wages either.
I would say that there is still a cost of labor
concern for building here in the U.S.
But I do agree with what Tim Cook is saying, that
there is also an expertise that makes
China very attractive.
There is a lot of skill and a lot of local supply
chain for where all the parts are going to come
from to build such a complex product that
makes it a very appealing place to build.
Apple said in a statement to CNBC that all of our
products are designed and engineered here, and
they all include components manufactured
in America.
For example, iPhone glass is made in
Kentucky, and lasers that enable face ID are
built in the U.S.
too. It also said just last year we announced
$430 billion in new investments across the
country, including our work with more than 9,000
suppliers across all 50 states.
In 2012, Google purchased Motorola for
$12.5 billion.
A year later, it opened the U.S.'s only
smartphone manufacturing plant in Fort Worth,
Texas, with plans to make the Moto X.
The factory was part of Motorola's plan to build
an American made, low cost smartphone.
But about a year after it opened, the plant shut
down, citing high domestic operating costs
and low consumer demand.
Google sold Motorola to Lenovo for a multibillion
dollar loss. Some experts say Motorola's
U.S. failure shows that the cost of labor and the
lack of skill in the U.S .
Is why manufacturing in the country is not cost
effective. Allen Young, a former Foxconn
executive and author of the book Flying Eagle,
brought up this point during a visit to the
White House in 2017 with then chairman of Foxconn
Terry Gou. Foxconn is Apple's largest supplier
and the world's largest electronic manufacturer.
Chairman Gou, Terry made it very clear.
The core skills and the capabilities of making
phones, manufacturing, electronics have moved to
Asia. And for it to come back to U.S.
it would be difficult, though not impossible.
But it will take a while. It won't be easy.
And that's the reality.
However, Purism is one American company that has
been able to do what many are calling the
impossible.
So this is actually where we're going to do a
manufacturing for the Librem 5 USA.
We're going to do the printed circuit board.
The printed circuit board assembly.
We started the company in 2014 doing
manufacturing in the United States of America.
Purism's a hardware manufacturer, as well as
software. So we do laptops, mini PCs, and
also a phone that run the same operating system
that we authored.
Purism offers a range of consumer electronics,
including the Librem 5 USA phone, which cost
$2,000. It's the only smartphone in the world
with the Made in USA stamp.
The FTC actually has a very strict definition of
what made in USA is or assembled in the USA.
The Librem 5 USA is manufactured in the
United States of America. We actually have
a label and a sticker we put on there Made in USA
Electronics, so that we're actually showcasing
that we are indeed qualified by the FTC
definition of Made in USA for a full phone.
The phone is assembled here in it's Carlsbad,
California factory.
Purism sources all components of the Librem
5 USA phone domestically with the exception of the
chassis and the wi-fi card.
Overall, what we're looking at is all the
electronics are manufactured at our
facility, the chassis, the specific components
are called integrated circuits. Those can come
from outside of the country. As a one
example, our NXP CPU is manufactured in South
Korea and then we import that specific chip and
then we use that on our board that we do all the
manufacturing.
But the company also sells the Librem 5 phone,
which is mass produced in China for $1,300.
It's $700 cheaper than the American-made model.
Weaver says he hopes to expand the line of
products the company makes in the U.S.
For us, obviously the U.S .
is the one we're expanding most and it's
going to even spill over to doing other products
in the United States as well, like our laptop and
mini PCs and potentially even servers.
There is also a potential for us to even
get into chip manufacturing.
Weaver said the company is profitable, but we
asked how this is possible with the higher
labor cost for the U.S.
Made model.
Actual physical labor costs are clearly more
than in China. We're able to sell at a price
point where we don't have to cram our costs so
far down. So that allows us to pay people really
well and take care of the employees and have
secure supply chain and everything else.
Purism initially started through a crowdfunding
initiative. Now the company says it's sold
tens of thousands of phones.
Overall, we're a multimillion dollar
company. We've seen growth triple digits a
year over a year since we started.
Our margins are healthy, which allows us to
continue to pay people really well and also
allows us to scale up
the business.
Purism said almost one third of its revenue
comes from the American made Librem 5 USA model.
But Weaver said labor hasn't been an issue for
the company.
The key piece that you're looking at is there's
actually not a lot of physical labor that goes
into producing a phone.
It's more mechanical labor, the actual
machines. And so machine versus machine, it's
equal to do U.S.
manufacturing on the same machine in the U.S.
versus a machine in China.
So in the end you're looking at a number of
U.S. jobs that can be that assembly line
operator, final fulfillment, but machine
versus machine is still equal.
But do Americans want these jobs?
Anytime we post a job at all, we're going to we
get 100 applicants.
So from line operators to assembly workers,
right? We're talking well over $10 over
minimum wage for a lot of those positions.
However, not everyone agrees this business
model will be successful in the States.
Baizhu Chen, a professor at the USC Marshall
School of Business, says these jobs are not coming
back.
I don't see in the U.S.
rows and rows of workers sitting in front of the
desk assemble the small phones.
I don't see that happening. These type of
jobs are not coming back to the U.S.
Now these I'm talking about the labor intensive
manufacturing job.
There's actually lots of manufacturing jobs that
are being made here in the U.S.
They're just not assembly jobs. They are data
analysis jobs, engineering jobs.
I definitely think there are compelling cases
where you can build highly complex products.
Here in the U.S. It's usually at much lower
volumes. It's not a million a day.
Smaller companies are often deciding to build
locally.
So what will it take to bring phone manufacturing
to the U.S.?
Not only do we need to rebuild the human
infrastructure, you also need to components to be
made nearby somewhere in the ecosystem needs to be
there.
America doesn't have this ecosystem here because we
have not been manufacturing phones for
years, and so the supply chain doesn't exist here
in the U.S. They are in Asia, in China, in
Vietnam, in other countries. So to rebuild
those things will take time and take a cost.
Very expensive.
It doesn't make any sense.
But in light of recent support from the U.S.
Government to transform the American
manufacturing ecosystem, the U.S.
Is taking steps to restore some
manufacturing jobs.
In August 2022, President Biden signed
the Chips and Science Act. The bipartisan bill
includes $52 billion to U.S.
based companies to produce semiconductors
with $39 billion in manufacturing incentives.
America finally is making policy at the federal,
state and local level, to level the playing
field. Beforehand, it was just difficult
because regulations and red tape were plenty.
Taxes were high and cost is very high.
I would say it would be very challenging to build
a complex electronic device like a phone here
in the U.S. It's absolutely it can be
profitable to build products here in the
U.S., but it's got to be the right product and
have the right technology support around
that product.
In 2017, the White House announced Foxconn's plan
to open a massive LCD screen manufacturing
facility in Wisconsin.
I led the project Flying Eagle, which was slated
to invest up to $10 billion and creating
13,000 jobs in the state of Wisconsin.
But Foxconn has massively scaled back on that
promise. In 2021, the company anticipated
creating less than 1,500 of the initial 13,000
jobs promised and cut its investments to 672
million.
Foxconn bit off more than it could chew at that
particular stage of their history, dealing
with everything from the regulatory side, the
environmental side, the actual buildings of the
facilities, and then even possibly getting the
right kind of people needed to do it.
That was just not reality in the short time
frame they promised.
Two key elements that actually affect the
project were the market condition and also the
investment climate.
In our case, for LCD manufacturing, the prices
dropped and got cut by half.
And if you ask manufacturers, would they
still build a project or build a factory if the
end products now so 50% off?
I think they have to pause and really take a
long, hard look strategically to do that.
But if the world's largest electronic
manufacturer could succeed in Wisconsin with
LCD screens, and if Motorola failed at making
phones in the country after only a year, it
seems highly unlikely that we will see any
other attempts to make smartphones in the U.S.
any time soon.
I can't comment on whether Apple asked
Foxconn to manufacture iPhones in the United
States, but I'm sure when the clients of
Foxconn asked the company to consider
manufacturing a particular product in the
United States, the company will be ready.
As to why it's necessary to build phones in the
U.S. Purism's president Kyle Rankin says it's
largely due to security concerns and data
protection.
At Purism we think data is uranium, so we treat
it like a radioactive substance where we
collect as little of it as humanly possible.
Manufacturing things in the USA avoids risk from
some other government or overseas or something,
tampering with it. Every extra link you add to the
supply chain is an extra opportunity for someone
to inject themselves in that supply chain and
tamper with things.
If China continues to be a security threat, more
and more of the U.S.
companies and the international companies
are going to move manufacturing outside of
China. And we're already seeing that happen.
But Professor Chen says it's really not
necessary.
We eat strawberries, we eat tomatoes, but we
don't grow tomatoes, we don't blow strawberries.
It's the same thing. We can consume iPhone for
any smartphone without manufacturing the
smartphone. These phones can be manufactured in
Vietnam, in China, in different other
countries.
Regardless of where it happens, the need for
manufacturing phones is only going to grow.
Other companies, they continue to fall back on
— it's just too hard to do in the United States
as almost a talking point as opposed to
actually looking into how it would be able to
get done. It can clearly get done and there's a
huge market opportunity and it's just cheaper for
those companies to offshore those jobs and
continue to import from other countries.
There is a reason why those companies
manufacturing product in China by combining the
labor costs and the supply chain and a
productivity, China is still the most efficient
place to produce.
Whether a phone or TV or computer should be made
in the U.S.
It's going to be up to the companies, meaning
the supply chain, including Foxconn and the
clients, to decide.
But ultimately it's the end user customers.
Who's going to decide?
And the customer is going to decide when go
to the shop or go online and make the purchase and
make the decision with their credit cards.