iPhone Added $2Billion to Trade Deficit w/China
A new reasearch paper calculates that because of the way trade statistics are calculated - the full value of an iPhone is considered an export to the U.S. from China by both countries, even though only about 1% of the value was created during the final assembly process in China - just the iPhone alone added almost $2 billion to America's trade deficit with China in 2009. The authors find that if a "value-added approach" was used to calculate trade statistics, the iPhone would have instead generated a $48 million trade surplus for the U.S. in 2009, instead of the $1.9 billion trade deficit reported using the conventional methodology.
See WSJ article here, which points out some political implications:
"The new research adds to a growing technical debate about traditional trade statistics that could have big real-world consequences. Conventional trade figures are the basis for political battles waging in Washington and Brussels over what to do about China's currency policies and its allegedly unfair trading practices. There's a growing belief that the practice of assuming every product shipped from one country is entirely produced by that country no longer reflects the complex reality of global commerce.
17 Comments:
I would venture a guess that not one congressman or senator who has railed against the value of the Chinese currency has every thought about the issues raised in this post.
What if Apple starts to sell a lot of I Phones in China? The U.S. component of the inputs would be an export to China. Design, engineering and marketing in the U.S. is then exported (sold).
A Genuine I Phone costs $738. The big problem for Apple is selling apps, which will be subject to Chinese government cencorship through ownership of all cell phone companies (98% population reach).
Great Post! The trade deficit figures are not accurate for the reasons mentioned in your post. According to the census bureau who calculates the trade deficit, we have run a $7.5 trillion deficit since 1960.
Another government agency - the Bureau of Economic Analysis - measure income payments to the U.S. from the rest of the world and income paid to the rest of the world. Interesting thing is that it shows the income FROM foreign sources ($589B) to be much higher than payments TO foreign sources ($484B) in 2009. In fact, this extra income has occurred every single year since 1960. This begs the obvious question: If we are $7.5 trillion in debt to the rest of the world (50% of GDP), why does our income from foreign investments far exceed our payments to foreigners?
Data for income payments to rest of world and income receipts from the rest of the world: Table 1.7.5 http://www.bea.gov/national/nipaweb/SelectTable.asp?Popular=Y
Trade deficit data:http://www.census.gov/foreign-trade/statistics/historical/gands.txt
Still not enough of a justification.
Explain to us why offshoring is such a good concept, but requires fraud and lies to maintain it. Every single implementation from Europe to the US has failed to be honest, or has hidden itself. It is a concept that cannot stand in the open to criticism.
Really interesting post, will do some further research around it.
Thanks
There have been several studies, including the classic iPod study from UC-Irvine, demonstrating just how obsolete global supply chains have rendered our conventional trade stats (and, by extension, just how silly/dangerous it is to base new US or global trade policy on the old-school data). It's just further proof that protectionists are playing checkers while the global economy has moved on to 3D Chess.
ProspectiveEconomist, I've chronicled a lot of the studies here, if you're interested: http://lincicome.blogspot.com/search/label/Global%20Supply%20Chains
Thanks a lot.
"Every single implementation from Europe to the US has failed to be honest, or has hidden itself. It is a concept that cannot stand in the open to criticism."
Well then, it wouldn't be at all hard to provide a couple of good examples, would it. Preferable with links. Can you do that for us please?
If this is true, why is China so eager to be a manufacturing platform?
Where do the huge torrents of capital obviously flowing into China come from?
Why has China (materially) flourished as their exports zoom?
Also, what does monetary policy mean in a globe where trillions can cross borders in a few mouse clicks?
Yes, also, U.S. workers who service high-tech or knowledge-based products (for producers and consumers) are paid well, and are part of the service economy (instead of manufacturing).
Yet another defense of free trade based on data not publicly available.
We have more free trade now than we have ever had. If free trade leads to prosperity then how did this unfortunate economic situation ever happen in the first place? Where I grew up there was a saying “if you can do it, you ain’t bragging.” You free traders have been bragging (shall we say to be polite) about the advantages of free trade for 40 years and all I see is Wall Street wealth created at the expense of Main Street suffering. As Ebenezer Scrooge would put it, everything is just fine except for the surplus population – 15 million or so unemployed.
That makes perfect sense. But consider this: the notion that the iPhone contributes to the trade deficit is not false: it's the composition of our trade deficit into its bilateral components htat is all screwed up by these accounting practices.
In other words: the existence of our trade deficit should not be discounted, but its composition is certainly misunderstood... and difficult to pin down with current statistics.
benji-
the reason that this manufacturing is flowing to china is that it is labor intensive.
the guy at foxcomm who made your iphone earns less than they guy who made you burger at burger king.
they also have lower corporate taxes, easier regulation, and faster expansion times.
platform companies like apple are taking advantage of cheap assembly just as you might take advantage of a cheap roofer from the next town.
ultimately, it allows apple to sell us better products and creates US jobs. if the iphone were assembled in the US, it would cost $1500 to buy. that would make it a VERY limited product, and cost lots of US jobs at apple.
instead, by offshoring you get a great product at an affordable price and a successful apple.
i find it amazing that the same people who drive to a bargain store to save themselves money instead of using their local one object to that.
Morganovich makes an important point about corporate tax rates. Of the 23 countries in the OECD, the corporate tax rate has fallen in 22 of them since 1990 by an average of 15.7 percentage points (-38% reduction in taxes on profits). The one exception is the United States where our corporate tax rate is over 50% higher than the OECD average.
Heritage has a great chart of corp tax rates for the OECD:
http://www.heritage.org/Research/Reports/2010/12/~/media/Images/Reports/2010/b2502/b2502_chart1_750px.ashx
Ron H:
Apparently you must have trouble looking for things like that, do some resarch. You want to defend a lie?
Look at any business that has gone offshore and note their resistance to say anything in public unless it is an inevitability. Note why these businesses will also use gag orders tied to severance when someone has the evidence in front of them. You wouldnt want workers to know or disclose the truth, would you? Finally, note the fraudulent job postings used to bring in people.
Lies are used to justify offshoring. The established practice of making fraudulent job postings and resistance to disclose should be old hat to you. You just wont dig for the painful truth, because it makes your case look bad.
they also have lower corporate taxes, easier regulation, and faster expansion times.
The onl "advantage" you cite is one that gives up individual freedoms for business freedoms. These businesses help Third World countries whitewash government security action by allowing the companies to do the executions, never siding with the critics(who seem to always die or disappear).
Foxconn got caught with their pants down and want somewhere to play their slavery game.
platform companies like apple are taking advantage of cheap assembly just as you might take advantage of a cheap roofer from the next town.
Not everyone hires illegals. That's about the only way you'll get one.
ultimately, it allows apple to sell us better products and creates US jobs. if the iphone were assembled in the US, it would cost $1500 to buy. that would make it a VERY limited product, and cost lots of US jobs at apple.
Unsubstantiated extrapolation. The most it would do is add a few cents to the final end-user cost. Even if you built them in Michigan.
instead, by offshoring you get a great product at an affordable price and a successful apple.
The actual lack of quality and the use of suicide factory Foxconn would beg to differ.
"Apparently you must have trouble looking for things like that, do some resarch. You want to defend a lie?
Lies are used to justify offshoring. The established practice of making fraudulent job postings and resistance to disclose should be old hat to you. You just wont dig for the painful truth, because it makes your case look bad."
seth, you have this backwards. I have no reason to spend time looking for something I'm not concerned about. You are making an assertion, and it is up to you to provide support for it. Otherwise you are just talking out of your ass as usual.
Companies that go offshore must be the worst secret keepers in the world if you know all about their sinister practices.
Do you really believe the iPhone is a poor quality product? Are you aware of any complaints? Lets see your supporting information.
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