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With technology rapidly advancing and more and more people losing their jobs to machines, the value of labour in the tech-heavy 21st century is truly ironic.
With Trump imposing high tariffs on Chinese imports, China has threatened to stop exporting altogether. An article I read online, inadvertently suggested that this will lead to production taking place in the US itself, and the cost of (if we are to take Apple as an example) the iPhone to increase drastically. But the question here is why?
Just how cheap could labour be in China that it overpowers even transportation costs?
In a world soon to be entirely dominated by machines and robots working on A.I, I was surprised to know that labour cost accounts for up to 25% of the entire cost of the product. And so I calculated the approximate cost of labour per piece in China, and in the US. I won’t delve into the math, but I’ll give you the basic values:
Minimum wage in the US: ~ $10 = the average day’s wage in China
Time taken to produce one piece = 2 days
After running some calculations, I found out that the average cost per piece (using the above-mentioned values), comes out to be ~$50 in China (but it can be up to $20 less). The average cost in the US is around $100. This lets the company save up to $70 per piece. Factor in a number of pieces manufacturers actually produces, and you’ve already saved $350,000 on a small-sized shipment!
Furthermore, the labour there tends to be a lot more productive than the typical American labour (no racism, discrimination, labelling, segregation, common assumption or any other offence intended). This boosts per-worker output, thereby giving the company even more profit for the same amount of labour. To further decrease the cost, land in countries like China and India is a LOT cheaper than the US.
Now, I hear you arguing – but transportation costs are huge…that should make a difference. Well, yes and no. Yes, transportation costs are sizeable, but no it doesn’t really make much of a difference. Allow me to explain.
Transportation is done in bulk and is carried out for different firms, all together. As the per-piece cost is already slashed a considerable amount, and the total transportation cost is relatively low, this doesn’t really affect the firms much.
Another significant example is Australia. All the refineries there have been shut down and moved to other locations such as Myanmar and Indonesia, for the same reasons as discussed above. The only difference being the transportation cost is now further reduced as the two locations are much closer to each other when compared to USA and China.
For those of you who don’t know, that’s a Garuda – Indonesia’s national emblem.