American Business Will Always Lose When it's Cheaper in China

In his State of the Union Address, President Barack Obama said, “Our workers are the most productive on Earth, and if the playing field is level, I promise you – America will always win.”

While this is an encouraging thought, the truth is that the global playing field is not level. China, the world's leading exporter and its biggest manufacturer, has an extreme advantage over every other country because they have the skilled engineering and semi-skilled labor capacity in numbers that cannot be matched by any other nation.

This fact is brought to light in a recent New York Times article which explains how China can deliver workers who consistently outpace their counterparts abroad.

As the article describes, a factory in China, known informally as Foxconn City, where the iPhone is assembled, “has 230,000 employees, many working six days a week, often spending up to 12 hours a day at the plant. Over a quarter of Foxconn’s work force lives in company barracks and many workers earn less than $17 a day.”

Nothing like Foxconn City exists anywhere else in the world. And few countries exact the type of harsh labor conditions on their employees – it is well documented that worker abuse is commonplace in many of the Chinese factories that supply Western companies.

But it isn’t just the cheap semiskilled labor that makes China so attractive to manufacturers; China can provide engineers at a scale that other countries cannot match. Apple’s executives said they estimated that about 8,700 industrial engineers were needed to oversee and manage the 200,000 assembly-line workers involved in manufacturing iPhones. The company’s analysts forecast it would take as long as nine months to find that many qualified engineers in the U.S. In China, it took 15 days.

It is clear that China has the upper-hand when it comes to producing products that require teams of workers to manufacture, like toys, apparel, and electronics. China has so many low-wage laborers and engineers at scale, there is no way high-wage nations can possibly compete.

However, countries like the U.S. are still competitive in the types of products that demand a high level of technology, engineering, and capital to produce. In these industries, for example, wages don’t matter quite as much, and the U.S. can capitalize on its advantage over China in technology and innovation.

Moving forward, this is the area in which America should aim to remain the most productive in the world. In this arena, there may still exist that level playing field that Obama supports. But, for the foreseeable future, when it comes to comparatively inexpensive, mass produced, assembly-line products, China will continue to lead the pack.

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