half of the $299 retail cost is accounted for by the $144 import price. The largest share of the retail price arises from Apple Computer’s profit and other activities and in U.S. distribution and retail. Some of the parts also originate from U.S. companies. The supply chain also includes transportation and logistics management, financing, risk management, and quality control. Many of these services may be provided by an American company. Apple Computer also sells iPods in the global marketplace. Although, these may be shipped directly from China, they contain U.S. parts and generate profits for Apple.
In this globalized business world, products may be pushed through the international supply network by an American holder of the brand name, or they may be pulled through the network by a major U.S. retailer. In either case, relevant U.S. policies include those affecting international trade, exchange rates, product safety, shipping security, as well as costs of fuel and raw materials, labor quality and price, and the existence of production infrastructure. These combine to affect the shape, geographical location, and operation of the supply chain. Conversely, the existence of the supply chain may affect U.S. policymaking. Trade policy aimed at curbing imports from China, for example, would likely affect Chinese exporters and ancillary sectors, but it also may hit subsidiaries of U.S. companies and manufacturers whose supply chains stretch there. It is not surprising, therefore, that some of the strongest voices both for and against trade protectionism come from American-based manufacturers and service providers.
The manufacturing sector, moreover, can operate only if it is supported by a robust and capable financial sector. Manufacturing managers tend to focus their energies on producing goods and use financial services companies to handle most financial activities. Many companies rely heavily on banks, brokerage houses, investment funds, and insurance companies to raise capital, finance transactions, insure against risks, and issue stock. When the financial sector is in crisis, the manufacturing sector is usually not far behind. For manufactures, such as General Motors, with in-house financial services, the current financial crisis may have hit them with a dual punch. It may have clobbered both their financial subsidiaries and their sales of product.7 Trade transactions, moreover, rely heavily on trust and credit. In 2008, thinly capitalized suppliers in other countries were finding it increasingly difficult to obtain new letters of credit. Available loans, moreover, were at higher rates of interest. This was threatening to disrupt the intricate supply chains that reached into China and emerging markets in eastern Europe. 8
7 For example, in the third quarter of 2008, GMAC, GM’s financing arm, reported a loss of $2.5 billion (of which $294 million was related to auto financing and most of the rest from mortgage financing). In 2006, a consortium of banks and Cerberus Capital Management bought 51% of GMAC from General Motors leaving 49% still in-house. Peter Valdes-Dapena, “GM Dealers Feel Squeeze from GMAC,” CNNMoney.com, November 6, 2008.
8Peter T. Leach, “Weak link: Trade suffers as suppliers struggle to obtain financing," The Journal of Commerce Online, December 24, 2008.