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0 pointsAnthonyMouse11mo ago0 comments

> This theme is common among people who don’t understand how manufacturing works right now: They don’t realize that a product like this has many different parts from different places, down to the dozens of little SMT capacitors. You can’t just move the factory and avoid tariffs because the parts still come from other places.

This argument doesn't make a lot of sense.

Suppose your company only does final assembly. Then whatever the value add of final assembly is, that's how much of the tariffs you can avoid by moving your own factory. You can eliminate as much as comes from your own contribution to the cost of the product. Meanwhile the company that makes the capacitors can avoid the tariffs on their value add by moving the factory that makes the capacitors. The fact that these are two separate companies doesn't really change much. Each one can move the part that they do.

In fact, it actually helps. Suppose the capacitor company can't move for some reason, but the final assembly can. Well, then at least you can avoid the tariffs on final assembly instead of neither if they were both made by some conglomerate that refused to move either one. Not only that, suppose other companies make the capacitors in Japan as well as China, and then the company can do the final assembly in the US and avoid the tariffs on capacitors from China by buying the ones from Japan.

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lucianbr11mo ago

So moving one factory helps reduce the impact of tariffs on the final product from 145% to 135%, and to reduce it to zero you would have to move hundreds of factories, with tiny gains at each step.

I think the original argument makes a lot of sense, and yours does not. "Just move two hundred factories on a different continent" might as well be "just invent a time machine".

AnthonyMouseOP10mo ago

> So moving one factory helps reduce the impact of tariffs on the final product from 145% to 135%, and to reduce it to zero you would have to move hundreds of factories, with tiny gains at each step.

This is ignoring two things. First, for the earlier components in the supply chain, it isn't a reduction from 145% to 135%. It's a reduction to 0%, because the inputs are fungible commodity raw materials made in dozens of different countries, so moving the factory removes the entire tariff for the company selling that input to some other company. Which is what the manufacturer (i.e. the component seller) cares about, and they're the one who would be moving the factory.

And second, the later stages of the supply chain tend to contribute the most value. Suppose you haven't moved the factory that makes the capacitors, but you move the factory that makes the phones. The phone costs $500 retail, how much of the contribution was the wholesale price of the capacitors? A dollar? 145% of <1% is tiny.

So you both have a large incentive to move the early stages, because the tariff you avoid is on ~100% of the selling price from the perspective of the company making it, and a large incentive to move the later stages, because the later stages are the largest share of the final price.

> "Just move two hundred factories on a different continent" might as well be "just invent a time machine".

Why is moving 200 factories harder than moving one factory, when there are also 200 companies and they each only have to move one factory?

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