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POLITICAL CONNECTIONS

An Eye on Apple

Could a competitor take a bite out of Apple’s market share if it made smartphones in the United States?

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Not made in the USA: iPhones(AP Photo/Brian Bohannon)

Imagine that the next time you brave the crowds at the Apple Store and emerge with the latest iPhone or iPad, it came with a bright-red sticker on the box. On the sticker might be the number 15. Or 10. Or maybe even 5.

The sticker would quantify the percentage of the parts in each iPhone or iPad that is manufactured in the United States. Today, that number probably would be tiny, not just for Apple’s flagship products, but for essentially all the shiny technological toys, from smartphones to flat screens, that American consumers covet.

 

“Probably” is the operative word, because U.S. law does not require most manufacturers to disclose the “domestic content” of their products. “We know fairly little,” said Scott Nova, executive director of the Worker Rights Consortium, an advocacy group. “There have been some industry trade-press analyses that speculate about certain questions relating to production costs and where components are from…. The working assumption is that we have very little of this stuff made in the U.S.”

After a full decade of disappointing job growth, it seems reasonable to ask whether more of “this stuff” would be built in the U.S. if manufacturers were compelled to detail where they make their products. What if the government required that products sold in the U.S. must carry information about the share of the components that are manufactured here?

Although relatively few people know it, a precedent exists. In October 1992, under President Bush, Congress approved the American Automobile Labeling Act. That law requires all new vehicles sold in the U.S. to specify what percentage of the parts were manufactured in the U.S. or Canada and what percentage of the vehicle’s assembly was performed by American workers. The information is available on a sticker plastered on the window.

 

If the same requirement were extended to all other products, would consumers favor those with more “domestic content”? Would manufacturers rely more on U.S. suppliers to improve the number they would be required to post under such a disclosure requirement?

In the abstract, polls say the answer is yes. Consistently, Americans say they would prefer products built at home. In a September 2010 Allstate/National Journal Heartland Monitor Poll, two-thirds of adults listed “making a greater effort to purchase products made in America” as among the most important things that individuals could do to accelerate economic recovery. In that same survey, two-thirds (more than picked any other option) listed shifting more operations to the U.S. as the most important thing that business could do to spur recovery.

Yet many observers are skeptical that those attitudes would actually shape choices at the cash register. Robert Reich, President Clinton’s Labor secretary and now a public-policy professor at the University of California (Berkeley), argued in his trenchant 2007 book Supercapitalism that the global economy’s internal logic now encourages people to elevate their interests as consumers (low prices) and shareholders (high profits) over their concerns as workers and citizens (a thriving domestic job base). Reich says he doubts that more disclosure about domestic content “would make much difference” in Americans’ buying habits. “With regard to most consumer gadgets and products,” he says, “most American consumers assume they are made somewhere else.”

The experience with auto labeling supports Reich’s skepticism. Federal studies have found that the vast majority of consumers are unaware of the auto-labeling requirement. One study found that even among those who expressed concern about “buying American,” less than one in 10 read the disclosure label.

 

Considering that precedent and other factors, Nova persuasively argues that domestic-content disclosure is unlikely to change purchasing patterns unless a high-profile manufacturer chooses “to make a product here and aggressively markets the product on that basis.” In that light, smartphone and tablet technology offers a unique opportunity. The reason is Apple’s dominance of the field. Although Apple CEO Tim Cook this week publicly mused about someday manufacturing more domestically, The New York Times has concluded that today about 90 percent of the iPhone’s components are made abroad. Partly for that reason, the best estimates are that Apple’s profits represent over half of an iPhone’s price. (While Cook insisted that Apple uses more domestic parts than widely believed, the company has not released specifics.)

Manufacturing a smartphone’s components in the U.S. would undoubtedly cost more (and require time to build a domestic supply chain). But because Apple’s profit margin is so high, a competitor could potentially build a smartphone more heavily sourced in the U.S. and still match (or beat) Apple’s price. Nova notes that consumers are already paying a vast premium for “the emotional resonance” of owning an Apple product. “Does getting a product made in the United States have the same emotional resonance?” he asks. “I think so, but no one has really tried it.” If someone did, it would put American consumers to the test—and maybe compel Apple to apply its unparalleled creativity to converting Cook’s airy musings into more American jobs.

This article appears in the June 2, 2012 edition of National Journal Magazine.

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