Apple has contracted to make its iPad 2s in China, where the typical worker makes a hardy $185 a week. What if, in a fever of uneconomic patriotism, Apple chose to make its iPads in the U.S.? Assuming typical U.S. manufacturers worked at the same speed as the Chinese, and assuming Apple raised the price to maintain its profit margin, the iPad 2 would cost more than $1,100.
The Analyst does some back-of-the-envelope math:
Average U.S. manufacturing/mining/construction compensation is $32.53/hour as of December, according to the BLS. Research firm iSuppli estimates the iPad 2 costs $10 to manufacture, which - using the $1.11/hour rate - works out to about 9 hours each to complete. If assembly and manufacture took the same amount of time in the U.S. as it does in China (another possibly unrealistic assumption), the cost of making each iPad 2 comes out to $292.77!
Again, according to iSupply, the material cost for the 32gb iPad 2 WiFi + 3g - which sells for $729 - is about $325, or $335 including labor, which puts Apple's gross margin (ex shipping/handling) at 54%. Just using the simple math above, if the iPad 2 was made in the U.S it would cost $617.77, bringing Apple's gross margin down to 15.25%! Of course, Apple is not in the business of self-immolation, and given their relatively substantial pricing power, they could just make the iPad 2 more expensive, let's say, increasing the price to the point where their gross margins stayed intact, from $729 to $1,144.02!
It's a rough approximation, but the final point is uncontroversial: We make stuff overseas because the Chinese are paid 1/30th of our median manufacturing salaries. (Attn. "China's Cheap Currency Is Stealing Our Jobs" Crowd: That's not a ratio that you can wipe out with a few years of currency appreciation.) Read the full story at Stone Street Advisors.
Afterthought: My colleague Dan Indiviglio and I were discussing this very question yesterday. When I forwarded him this article, he pointed out that the fully domestic production of iPads would require that we import all their elements, which would change the final price. Changing the supply chain isn't just a geographical swap, it's a cost. If we chose to mine the metals domestically (for whatever reason ... it's only a thought experiment!) the price would rise again, since U.S. miners are paid more in California than, say, Peru.
This article available online at: