The Dark Side of an Advantage

A 2014 article published in Forbes magazine discusses the recent decline in Chinese manufacturing, a market in which the United States had been losing out on for quite some time. The reason these manufacturing jobs moved from the US to China, and now to countries such as Indonesia and the Philippines is because they have the advantage. If all of our tech items and clothing items were manufactured in the US they would cost an astronomical amount more. In order to have cohesive global trade, countries must accept what they do and do not have the comparative advantage over, and sometimes this can show the overall dark side of an advantage.

We see the impact of comparative advantage everyday even if we do not realize it. Often it effects are condemned, but nothing is really done to drastically change it. Mainly because if a shirt made in Taiwan costs $5, but if it were made here would put a $30 dent in our wallets, we could choose the Taiwanese shirt, every time. This is because we are rational consumers, and not every product should be made on our shores.

American Apparel is a clothing company that manufactures all of its items in the United States. That means they pay their workers fair wages, they work reasonable hours, and receive healthcare benefits if they qualify. Because of this, their clothes are substantially more expensive, than something I could easily purchase at Forever21, a retailer that relies on manufactures Asian countries where labor laws are less strict. Because of this, Forever21 has a higher profit margin because they rely on unethical labor, whereas American Apparel suffers because they have to hike up their prices in order to cover labor costs. What I am mainly asking is one retailer taking the benefits of comparative advantage too far?

We produce clothing and technology in other countries for a reason, as Americans we would not like to pay the price of fair labor. This is a hard truth to accept, but it is the harsh reality of what comparative advantage can also do. Yes, in some cases one country really does find news ways to manufacture a product that is far superior than another country, but in terms of auto-manufacturing and clothing, are there really Americans who could not perform? Overtime we have moved these jobs overseas because it is simply more cost-effective. The next iPhone will be born in Silicon Valley, but it will be manufactured across the Pacific.

The United States actually invented the concept of sweatshops, something that gives countries such the Philippines and Indonesia the advantage because they did not have the safe-labor revolutions that we had in this country. Ford also revolutionized the auto industry by implementing the assembly line in his car manufacturing plants. But, auto and clothing manufacturing has not changed in modern times, just changed locations.  The United States simply lost it’s advantage in manufacturing. This has not hurt our country overall, but has actually harbored healthy trade relations with other countries.

Comparative Advantage overall harbors a healthier global trade economy This, however, does not detract from the dark side that sometimes sees the light of the media, but we are too busy reaping the benefits to really change the system and subsequently lose out on an obvious manufacturing advantage.

Forbes-Manufacturing Beyond China

Forever21 Cheap Manufacturing