7/12/2012

Outsourcing debate: For private companies, who cares. For government, my problem is with the government funding.

Disappointingly, both Republicans and Democrats are trying to out demonize each other over who has done the most outsourcing. The bottom line is that trade makes the US wealthier. That is certainly true for private companies. And while Obama has dishonest attacks on outsourcing while Romney was governor, if Obama didn't outsource some of his government expenditures, presumably the cost to taxpayers would be even greater.

There is a certain irony for President Obama to attack anyone over the trade issue. People may remember the promise that Obama made during the 2008 presidential race to renegotiate NAFTA.

I wouldn't criticize Romney if he had used outsourcing to rescue the companies that he helped. But Romney didn't really engage in outsourcing (though I assume that new documents will create a debate over when Romney really left Bain), while Obama spent almost $29 billion last year on outsourcing. By the way, Obama gets a lot of campaign donations from employees at companies that do outsourcing. Will he return those donations?

I suspect that a lot of the people denouncing Romney for outsourcing are using an iPhone. Would it be better if they bought a smart phone from South Korea or Taiwan? Possibly Suppose that Apple was forced to build the iPhone entirely in the US.

Figure from the New York Times, July 5, 2010, about the iPhone 4. Even more here:
...designed by Apple engineers in the United States, sourced with high-tech components from around the world and assembled in China. Shipped back to the United States, the iPhone is priced at $600, though the cost to consumers is less, subsidized by AT&T in exchange for service contracts.

“China makes very little money on these things,” said Jason Dedrick, a professor at Syracuse University and an author of several studies of Apple’s supply chain. Much of the value in high-end products is captured at the beginning and end of the process, by the brand and the distributors and retailers.

According to the latest teardown report compiled by iSuppli, a market research firm in El Segundo, Calif., the bulk of what Apple pays for the iPhone 4’s parts goes to its chip suppliers, like Samsung and Broadcom, which supply crucial components, like processors and the device’s flash-memory chip. . . .

Apple, for instance, pays Samsung about $27 for flash memory and $10.75 to make its (Apple-designed) applications processor; and a German chip maker called Infineon gets $14.05 a phone for chips that send and receive phone calls and data. Most of the electronics cost much less. The gyroscope, new to the iPhone 4, was made by STMicroelectronics, based in Geneva, and added $2.60 to the cost. . . .

The least expensive part of the process is manufacturing and assembly. And that often takes place here in southern China, where workers are paid less than a dollar an hour to solder, assemble and package products for the world’s best-known brands. . .

Note that if Apple didn't assemble the iPhone in China it might not be able to make that $360 in profit. As Hal Varian wrote in the New York Times:
The real value of the iPod doesn't lie in its parts or even in putting those parts together. The bulk of the iPod's value is in the conception and design of the iPod. That is why Apple gets $80 for each of these video iPods it sells, which is by far the largest piece of value added in the entire supply chain. . . .
From Fox Nation. The first few paragraphs are my own rough transcription. But do you really want a Republican candidate attacking a Democrat over outsourcing. I would have attacked it over government spending, not outsourcing. Is this really too difficult to explain? If it is too difficult, what does that say about future policy that will also be too difficult to explain?

Andrea Mitchell, MSNBC: But Mitt Romney today in Colorado, which is one of the important battle ground states, making the point that President Obama has an outsourcing problem.

John Sununu: Yah, he does. And the outsourcing issue really causes two problems for President Obama. One it really underscores his dishonest. . . .

And the second problem that he has with outsourcing is that there is a huge amount of outsourcing which was driven by Obama policy. The $500 million that they gave to Fisker created jobs in Finland. The solar energy grants that they gave created jobs in Mexico. The windturbine grants they gave created jobs that in Denmark. So the point that I think is really interesting is that it that the os issue underscores how few smarts there are in this White House and in this Obama campaign. That they expose themselves to the response criticisms that I think . . . is going to make it a winning issue for Mitt Romney.

Andrea Mitchell, MSNBC: Isn't it a winning issue for the White House, fundamentally, granted that the PolitiFact folks and the Washington Post pointing out that the President's campaign ad on that issue had a lot of questions and a lot of questionable attacks?

John Sununu: But they said it was wrong. A lot of questionable tactics is not right, it was wrong.

Mitchell: But the point is, that isn't Mitt Romney more vulnerable than the President on this issue because there still is -- the whole question of private equity of outsourcing. Yo could argue about when he left Bain Capital and whether he was still getting money from Bain Capital and what some of the companies in Bain were doing, companies that did end up working overseas and sending jobs overseas. But isn't it a bigger problem for Republicans than for the White House?

Sununu: No. When you've sent $500 million to Fisker and it goes to Finland immediately. When you send the solar money and it goes to Mexico. When you send the turbine money and it goes to Denmark. And we can go on all day. There is $29 billion worth of purchases that came out of this administration, outsourced jobs to foreign countries.

Mitt Romney outsourced zero --

Mitchell: Zero?

Sununu: Zero. He wasn't there when those issues came up.

Mitchell: Well, first of all the $29 billion are not all outsourced from the administration because ---

Sununu: Sure they are.

Mitchell: A lot of those jobs still remained here. There are jobs -- when you do a grant, governor, there are jobs here as well as overseas.

Sununu: [laughing] You're struggling, Andrea. You're struggling.

Mitchell: First of all, these are competing claims and we will get back to you with all of the numbers.

UPDATE: See more here from Michael Kinsley.
Democrats argue that he should be ashamed of Swiss bank accounts and other foreign currency investments that amount to "betting against the dollar." If Romney is sincere in his belief that Obama is wrecking the economy, then he ought to bet against the dollar. . . .
Only problem with Kinsley's point here is that Romney's money is in a blind trust. Here is something from the WSJ: What about Romney making protectionist arguments against China? Probably it is in response to the anti-free-trade arguments for China from Obama. Not that I want him to follow these policies, but what tough policies has Obama imposed on China? From Fox News:
President Barack Obama challenged rival Mitt Romney's promise to get tough on China, saying in a new ad released Saturday that Romney "made a fortune" allowing China to take U.S. jobs. Obama's ad turns again to a report that several businesses backed by Romney's former private equity firm moved American jobs to China and India to cut costs. In a parting shot, a narrator says Romney is "not the solution. He's the problem." The ad follows Obama's two-day bus tour in Ohio and Pennsylvania, where the president announced plans to file a trade complaint against China at the World Trade Organization for unfairly imposing duties on the exports of U.S.-produced automobiles. Ohio is home to several auto plants and tens of thousands of workers directly employed by the auto industry. . . .

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