Buy New IPad. Flip Over. Understand U.S.-China Economics
Today is International Wait in Line for Your New iPad Day, an annual rite of spring for thousands of urban American hipsters and an official holiday in many regions of the Internet. It will not, however, be celebrated in China.
That’s because the new iPad is not yet available in China, except in Hong Kong. It is being released first in the U.S. and nine other wealthy markets across four continents. Chinese consumers will live to wait another day. The irony here, almost as vivid as the new iPad’s 2048-by-1536-pixel screen, is that there are already millions of the devices in China. As it says on the back of every iPad: “Designed by Apple in California. Assembled in China.”
It’s nice to have a two-sentence illustration of the concept of comparative advantage handy, especially in an election year. The debate over Apple Inc. (AAPL)’s labor practices -- or, more generally, the U.S. trade relationship with China -- has a tendency to obscure more than it clarifies.
So let’s take each of those sentences in turn. The first -- “Designed by Apple in California” -- is pure marketing, intended in part to deflect the critical attention attracted by the second. A more ambitious effort to quantify Apple’s impact on the U.S. economy (too long to fit on the back of an iPad) came this month, when Apple released a report about how many jobs it “creates or supports” in the U.S.: 514,000.
Apple directly employs only about 47,000 people in the U.S. Those extra 467,000 are accounted for by “standard Type 1 employment multipliers” (so reads the fine print), which seem almost as magical as the iPad itself. Certainly there are many programmers, engineers, marketers and taco-truck drivers who would not otherwise have jobs but for Apple. But economists disagree over how far to take this reasoning. How many editors, producers and baristas has the production of this editorial “supported”? Not even we can quantify.
Which brings us to that second sentence, “Assembled in China,” a legal requirement governed by the rules of origin doctrine. The Foxconn Technology Group has a contract with Apple to make iPhones and iPads at its factory complex in Shenzhen, China, where it employs about 230,000. The New York Times has reported on the horrific (and occasionally fatal) working conditions there, and Apple and Foxconn have recently taken steps to improve them.
It is highly unlikely these improvements would have happened without public pressure from U.S. and international labor and consumer groups. Credit goes to groups such as the Fair Labor Association, which Apple recently joined, and people such as the playwright Mike Daisey, whose one-man show about Steve Jobs personalizes the issue in a powerful way.
It is not contradictory to support these efforts, as we do, while also supporting the right of Apple to manufacture its products in China. It benefits both U.S. consumers and Chinese workers for Apple to design its gadgetry over here and put it together over there. Economies are supposed to do what they’re good at. If you don’t believe David Ricardo on the general theory, see Paul Krugman about the specific case.
The larger point is that the laws of economics cannot be overturned by activism, nor do they need to be apologized for. The Fair Labor Association will continue to work to improve factory conditions in China, and people can continue to argue that a job in a manufacturing plant is better than one in a rice paddy, or no job at all.
The buying public is free to assess who has the comparative advantage in this debate and behave accordingly -- there are a lot of good reasons to buy an iPad, or not to. The voting public would do well not to pay much heed to the overheated rhetoric on U.S. trade policy toward China in the presidential campaign.
Meanwhile, Apple is free to amend the back of the iPad to read: “Designed and supported by hundreds of thousands of well- paid employees in California and the rest of the United States. Assembled by fairly treated contractors working with regular breaks in China.” Or maybe something a little snappier. Think about it while you’re waiting in line for that new iPad.
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