Is buying an iPad un-American?

There's a bigger picture beyond getting a shiny new toy.
Written by David Gewirtz, Senior Contributing Editor

If buying a car not made-in-America can be considered un-American by some people, can buying a computer (or whatever the heck the iPad is), also be considered un-American?

This is a more important question than you might think. While our rate of net job loss has slowed down some, there are still more than 15 million Americans unemployed, not counting those who are considered "underemployed" or who simply gave up trying to find work.

When nearly 10% of the nation is officially unemployed, when certain ethnic minorities have much higher rates of unemployment and some regions have one out of four people out of work, is it un-American to buy products made in other countries?

I asked this question in depth in my new book, How To Save Jobs (you can download it for free here). The most shocking piece of information I uncovered was that fully 10% of our tax dollars (and probably more) is used to employ people outside of this country. America sends more than $260 billion dollars of our money, each year, to companies headquartered outside of the U.S.

You can employ a lot of people for $260 billion. In fact, America could employ somewhere between 2.6 and 10.4 million people for the amount of money we send outside America -- and that's just tax dollars.

Can you imagine how many people we could employ if we bought our goods from American companies?

Next: Costing out the iPad and iPhone »

Costing out the iPad and iPhone

That brings us back to the iPad. In the book, I did some research into the iPhone. On every iPhone box, you'll see the tag line, "Designed in California. Assembled in China." Like that's something to be proud of. In my research, I wanted to know what America's share was of the iPhone. So I took a look at the components.

This is actually a much harder question than it might seem, because, according to market analyst iSuppli, it costs $178.96 to build a $199 iPhone 3G S:

  • Toshiba provides the 16GB flash memory module for $24.00
  • Samsung provides the application processor for $14.46 and the
  • SDRAM module for $1.25
  • Infineon provides the telephony chips for $13.00, the GPS receiver for
  • $2.25, and the power integrated circuit for $1.25
  • Broadcom provides the wireless networking chips for $5.95
  • Numonyx provides the memory multichip pack for $3.65
  • Murata provides the finite element array for $1.35
  • Dialog also provides another power circuit for $1.30
  • Cirrus Logic provides the audio codec for $1.15

In addition, the display costs $19.95, the touch screen costs $16.00, the camera module costs $9.95, and a variety of miscellaneous doodads cost $48.00.

If you've been following along, and adding up those numbers in your head (you, have, haven't you?), then you'll notice that the total comes to $172.46, not $178.96. Where's the other $6.50? That is what iSuppli attributes to manufacturing costs, or what I'm assuming are really the assembly costs, since each individual component listed above also has a manufacturing cost.

Let's look at some of the companies mentioned. Toshiba and Murata are Japanese, Samsung is Korean, Infineon and Dialog are German, and Numonyx is Swiss. Broadcom is actually American. So is Cirrus Logic, but that company is "fabless," which means it doesn't fabricate any of its designs. So while it provided the audio codec design, the actual chip was manufactured ("fabbed") somewhere else.

Although the iPhone comes from an American company, companies headquartered in Japan, Korea, Germany, Switzerland, and China all get a piece of the action.

And that doesn't include the part of the iPhone's price attributed to your service contract.

I don't yet have a full cost analysis of the iPad, but since the iPad is essentially a big iPhone, we can reasonably assume that when you buy an iPad, you're once again sending most of what you pay to Japan, Korea, Germany, Switzerland, and China -- not to manufacturing facilities located here in America.

Next: The bigger picture »

The bigger picture

I've singled-out Apple here, but that's not really fair. Most consumer electronics either comes from outside the U.S. or has components that do. Many of us have built our own desktop PCs and we all know that most of the motherboards we buy come from Asia. In fact, most of the components in our PCs, monitors, laptops, and phones come from manufacturing plants outside the United States.

The paradox is obvious. We like our ever-cheaper consumer electronics and computers, but we also need jobs to pay for them. Most readers here have IT jobs, but we all know how many tech support and programming gigs have been outsourced to other countries, where people get paid a dime for every dollar we get.

Besides, why should we pay more? Frugality and getting as much bang for your buck is part of the American value-system DNA. We believe in market forces, so shouldn't it be up to American companies to compete more effectively they want our business?

American workers vs. the world

If an American company with American workers made a better, cheaper memory module than Toshiba, does anyone think Apple wouldn't have bought it, instead? Of course not. Most analysts (myself included) expected the iPad to come out at $999 or even more and were quite surprised to find it priced relatively aggressively. A big part of the aggressive price of the iPad was keeping costs down, which also means buying from foreign suppliers.

This issue is far bigger than Apple. On average, every American employer pays $2/hour for a single employee's health coverage, up to about $8/hour for an employee with a family of four. In my How To Save Jobs research, I found that $2 a day is considered a middle class salary in China. So for less than what it costs per hour to provide health insurance to an American employee, companies can get a full day's work out of a "middle class" Chinese employee.

If anything, the recent health care legislation will make this burden on employers worse, not better. America insists on linking health insurance to employment, essentially holding employers hostage to the health insurance industry. Health insurance, essentially, becomes a part of every Cost of Goods Sold for every product and service in America.

Until we unlink health insurance from employment, our companies will continue to have difficulty competing -- and not just with China. Since almost all industrialized countries provide some sort of Medicare for all (think uber public option), nearly all the companies in all the countries we compete against can produce goods and services for a lower price. That's a big part of why GM (yes, Government Motors) is producing the hot new Camaro in Canada, and not in the United States.

Before you go all partisan on this, remember that both parties -- Democrats and Republicans -- insist on linking health care to employment, so both parties are part of the problem and not part of the solution.

Next: Is it un-American? »

Is it un-American to buy an iPad -- or any other computer gear?

This is the challenge we, as a nation, are up against. If that $99 motherboard you just bought was built here, in the United States, it'd probably need to cost well about $1,000. That $499 iPad would wind up costing nearly $5,000.

The answer is no. Of course it's not un-American to buy an iPad (or any other computer gear, for that matter). We need our computer technology, now more than ever. And we deserve to be able to buy inexpensive gear, if it's available.

But the bigger issue is we're going to need to find ways to be more competitive, or most of what we consume will be cheaper if it's bought from outside the U.S. As more of our work goes offshore, the question won't be "Is it un-American to buy an iPad?" Instead, the question will be, "Can Americans afford to buy iPads?"

There are ways to improve this situation. In How To Save Jobs, I outlined a project to help us all determine America's Share, how much money from each product we buy stays in America. Plus, if the U.S. government, along with state and local governments, stopped buying products and services from outside the U.S., we'd strengthen America's economy and weaken the economy of our competitors.

This question of America's ability to compete will be a defining theme for the next few decades. It's not because American workers aren't as good. Our workers are among the best and most dedicated in the world. Instead, it's about our cost structure and our standard of living.

To keep our standard of living, we need to make more than the poor, starving workers in China -- there are more people in China and India who are starving than we have people. This, then, is the paradox of international job competition over the long term. As more and more people in developing nations enter the middle class because of the jobs we're sending there, more and more of them will want to make more money. As more of them make a living wage, their cost advantage will begin to evaporate.

For now though, only you can decide how you want to spend your money. Go ahead and buy that iPad or that Asus motherboard. Keep in mind, though, that there's a bigger picture beyond getting a shiny new toy.

Disclosure: I derive a small income from iPhone applications. Although How To Save Jobs was gifted to the public through a non-profit organization, I will get a small percentage of the revenue from print book sales. And I drive a Ford.

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