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When Donald Trump makes a trade enemy of
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China, arguing the US buys way too much
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from them. Last year, China made uh $1
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trillion off trade with the United
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States. That's not right. You have to
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consider how much of that is Americans
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buying clothing made in China. Estimates
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are about 30 to 40%. But this wasn't
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always the case. Apparel used to be
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produced in factories in Canada or in
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the United States. much of that was then
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offshored especially when China joined
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the uh world economic council. You know
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they became part of that uh supply chain
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and that meant pretty quickly the US got
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cut out. Just take a look at how many
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fewer Americans have jobs making clothes
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today compared to 30 years ago. The
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Trump administration's goal of course is
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to bring that golden age of American
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manufacturing back and to put that money
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back into the pockets of Americans. If
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we do not protect our nation's
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manufacturers, we lose a fundamental
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part of who we are as a people. And it
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is a popular idea. Americans by and
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large would rather buy stuff that's made
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at home. One survey showed 82% of people
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said they would buy more made in America
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products if they were sold more widely.
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But of course, to use clothing as an
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example once again, there's a reason.
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The US now imports a majority of what
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Americans wear from Asia. The price of
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clothing has gone down dramatically and
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that was primarily due to the offshoring
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of production. Yeah, it's just cheaper.
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Consider this. Say you bought a big old
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box of anything in 1970 and it cost you
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$75.
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Doesn't really matter what you bought
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because if we take average US inflation
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into account, buying that same box of
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whatever would cost you more than 600
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bucks in today's dollars. So unfair,
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right? But now, let's say we're talking
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about a 1970s coat. Same price, but 50
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years later, inflation in the apparel
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industry is tiny compared to how much
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more expensive everything else has
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gotten. That same coat in today's
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dollars will cost you around 167 bucks
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today. That essentially speaks to
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China's overall price suppression effect
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by being able to provide to us lowcost
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apparel at a mass quantity. So we wanted
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to know can the US bring something like
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apparel manufacturing back to America
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without forcing every American to break
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the bank? Let's go through it.
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[Music]
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So, let's talk about shoes. How much it
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costs to make a pair and how much you
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can reasonably sell that pair for. What
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will the market bear? And we'll use a
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pair of Nikes made in Asia as an
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example. Retail price 100 bucks. A few
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years ago, the head of Nike's footwear
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sourcing program said on average on that
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$100 pair of shoes, figure 25 of those
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dollars is the cost of actually making
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the shoe in the factory. which makes it
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sound like Nike is making 75 bucks
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profit on every pair of $100 shoes,
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which is insane. But of course, we're
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not done. That $25 production cost is
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really just the Asian factory. The
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material, the labor, all of it. But
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that's a long way from the shoe being on
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your foot, right? You got to send those
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things across a whole ocean. Shipping
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and add another dollar onto the total
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cost. And US duties, which was
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pre-tariffs, about
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$2.50. So now we're up to around 28.50
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to bring those Asian-made shoes into the
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United States. But then Nike has to tell
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people that it's got some cool new
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shoes, right? There's marketing paying
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for operations here in North America,
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labor, so on and so forth. And that's a
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big expense, another $15 on this
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particular pair of shoes. There's also
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taxes because of course there's taxes.
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And we're now basically at just over
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$45. But you're still not wearing the
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shoes because it's not like Nike makes
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most of its money selling direct to
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consumer. It sells mainly through stores
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like Foot Locker or Sports Experts. And
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they're going to want their cut as well.
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According to Nike, a retail store might
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pay them around $50 for the shoes. And
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this is where Nike takes the money and
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exits the transaction, pocketing a
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relatively small profit of
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$4.50. But now this shoe is the
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retailer's problem. They've got to
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recoup the $50 they just paid Nike and
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all of their other operating costs, too.
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So that's why they're setting the price
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to you, the customer, at $100. But
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here's the kicker. According to Foot
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Locker's financial statements, they
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don't tend to sell $100 shoes for $100.
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they might sell that pair for closer to
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60 because of all the discounts that
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they have to offer to actually move
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product before the end of the season.
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Unfortunately, there's a lot of stuff
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that bombs. It hits the shelf, it
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doesn't sell. So now it has to go on
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sale. When retailers, they set up the
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initial price, they will already factor
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in, you know, how much discount they
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plan to offer in the future. So all of a
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sudden you've sold a $50 shoe for $60
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for a measly $10 margin and that's got
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to pay for your own marketing, your
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employees overhead costs and ideally you
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make some kind of profit. Otherwise, why
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did you bother buying and selling the
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shoe in the first place? Apparel is is
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generally low margin. There just isn't a
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lot of wiggle room at all. This, ladies
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and gentlemen, is what the market will
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bear. This is the low cost and the
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equilibrium that this one slice of the
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apparel industry has reached. So now
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let's ask Trump's question. Can all of
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that start and finish in America? And if
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so, how much more is it going to cost
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you? If we look at apparel manufacturing
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today, there are a couple of big things
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that China has that the US doesn't. The
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first is cheap labor. If there's
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something very complicated like a ski
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jacket that has many complicated steps,
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that is so labor intensive that at times
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it's just not possible in the US to
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produce such a thing and be affordable
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at the retail level. Yeah. Because
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American workers are just paid more. And
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that's true not just in clothing, but
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across all manufacturing. As of mid2024,
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the average manufacturing worker in the
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United States earned close to $30 an
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hour. Compare that to under $7 an hour
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in China. Some of that we can attribute
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to much harsher and by western standards
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unethical labor practices. But China
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also has a much bigger population and a
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massive pool of workers ready and
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willing to do this kind of work for $7
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an hour, which we should say does go
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further than $7 would here in Canada or
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the United States. On average, cost of
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living in China is similar to the labor
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discount. Anywhere from a quarter up to
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half of what it cost to live here in the
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United States. It's a huge population.
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Especially the industry has been going
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further and further into the the back
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country of China where there are
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millions of people who you know they
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work in rice fields and they're being
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given jobs in factories. They may not
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have many economic you know
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opportunities. So working in a garment
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in factories can be a great choice or a
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very attractive choice to many people
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living there. So how would a factory in
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America even begin to close that gap?
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Well, the Trump administration has an
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idea. How can we compete with that uh
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labor? The answer is robotics are going
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to do it better and cheaper. And the key
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to robotics is going to be American AI
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and American intuition and the American
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technology. The idea here being if you
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can delegate some of the more mechanical
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work to robots like Tesla's Optimus,
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that could improve efficiency and reduce
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costs, right? And according to Trump's
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team, this could also create new, higher
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paying jobs for Americans running those
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robot factories. You're going to see the
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greatest surge in training for what we
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call trade craft, teaching people how to
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be robotics mechanics, engineers, uh,
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and electricians for high-tech
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factories. Except this, too, has a cost,
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a big upfront cost, because they're not
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just talking about moving factories to
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the United States. They're talking about
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creating something better and more
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efficient than what China already has
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and doing it from the ground up. That's
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not easy. The Chinese government invests
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significantly in different industries.
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So when you look at the equipment they
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have there, which is, you know, the the
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spinning, weaving, bleaching, you know,
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the cut and sew operation, it's all
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highly automated. So they have some very
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efficient processes. They're very good
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at producing large volumes at low cost.
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In fact, in 2015, Nike actually tried to
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create a highly automated factory in
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Mexico. The goal being pretty similar,
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to get robots to put together the tops
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of its sneakers in 50 to 75 seconds, a
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job that would normally take a human
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well over 10 minutes. But less than
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three years later, it all fell apart. It
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just didn't work. the costs of uh
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automation. They were trying to automate
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the process, the cost of labor, the
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learning curve, the productivity levels
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were not able to justify the cost of
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producing that shoe versus the price
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that they could get for it. And even if
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you could get a whole slate of brand new
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US factories filled with robots doing
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all the work, experts agree they still
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need the materials to work with. If I
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try to keep everything USmade, um, it's
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almost impossible. At some level, I have
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to still use the thread, I still have to
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use the buttons or something that is
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produced in China. In order for the
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United States manufacturing to catch up,
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we would have to invest in lots and lots
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of infrastructure uh, in the entire
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apparel supply chain. In short, it's
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going to take billions and billions, if
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not tens or even hundreds of billions of
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dollars. They could probably produce
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apparel in the in the United States or
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Canada, but it would be at least
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probably triple or quadruple the cost of
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what they can produce in Asia. And
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that's where Trump's plan crashes into
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this wall of reality because are you
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willing to pay $400 for a $100 pair of
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shoes? Now, let me take one step back
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because everyone we spoke to did agree
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there are some industries where it could
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make sense for the US to invest in
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reshoring building weapons or making
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pharmaceuticals for example. These are
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very arguably issues of national
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security. But not every industry is like
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that. And the example of clothes a
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source of major domestic manufacturing
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loss in the United States. It is simply
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not feasible for America to get a lot of
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these jobs back. Personally, I do not
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think this is a reality. It just doesn't
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make sense. The consensus is pretty
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clear.
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[Music]
