First, the issue with the labor force in China is that it can provide a steady or scalable amount of "technical" workers:
Another critical advantage for Apple was that China provided engineers at a scale the United States could not match. Apple’s executives had estimated that about 8,700 industrial engineers were needed to oversee and guide the 200,000 assembly-line workers eventually involved in manufacturing iPhones. The company’s analysts had forecast it would take as long as nine months to find that many qualified engineers in the United States.We spend so much on primary and secondary education in the United States, and yet so many of our high school graduates cannot compete at this level or complete college to compete at a higher level.
In China, it took 15 days.
Companies like Apple “say the challenge in setting up U.S. plants is finding a technical work force,” said Martin Schmidt, associate provost at the Massachusetts Institute of Technology. In particular, companies say they need engineers with more than high school, but not necessarily a bachelor’s degree. Americans at that skill level are hard to find, executives contend. “They’re good jobs, but the country doesn’t have enough to feed the demand,” Mr. Schmidt said.
Second, there is agglomeration in manufacturing -- the presence of one link in the supply chain makes it more advantageous for other links in the supply chain to locate nearby. The story is reminiscent of the rise and fall of cities over the last century. Treat yourself to this book, Triumph of the City, by Ed Glaeser. He provides many examples of how cities rise or fall depending on whether they provide valuable connections and proximity to other productive people or assets. The electronics supply chain is such an asset in China. Trying to compete with that would be like competing with Silicon Valley in technological product design and marketing -- or, as Glaeser illustrates, with Detroit a hundred years ago in automobile design and manufacture.
Read the whole thing.