The harbor freight tools are probably cheaper not only because labor is cheap, but because they don't have any development costs as well since they are just copying other companies designs. Also, don't forget that there's very little environmental regulation as well, so that also keeps costs low. If you think Chinese tools are a good deal now, wait until we get a cap and trade/tax system!
The Chinese are hard working people, they don't have any patent laws and the government works hard to makes sure no liberal ideas dilute their system. We also give them our best technology any time we outsource manufacturing to them.
How can we compete?
One product HF has that is really terrible is their flapper sanding disks. Those things just blow apart in about 2 seconds of use! They are nothing like the 3M ones...
I use Klingspor flap discs and other abrasives. They last far longer than Norton, are less expensive, and a sales guy comes around once a month. They are made in Germany and have US distribution in North Carolina. They are also online. Sandpaper, Abrasives, Woodworking, Metalworking, Rolls, Automotive, Waterproof, Belts, Discs, Sheets, - KLINGSPOR Abrasives, Inc.
Al