iPhone, iPad Study Shows Trade Stats Dramatically Overstate the Value of U.S. Imports from China
Here's the abstract of the July 2011 article "Capturing Value in Global Networks: Apple’s iPad and iPhone," by Kenneth Kraemer (UC-Irvine), Greg Linden (UC-Berkeley), and Jason Dedrick (Syracuse University):
"This article analyzes the distribution of value from innovation in the global supply chains of the Apple iPad and iPhone. We find that Apple continues to capture the largest share of value from these innovations. While these products, including most of their components, are manufactured in China, the primary benefits go to the U.S. economy as Apple continues to keep most of its product design, software development, product management, marketing and other high-wage functions in the U.S. China’s role is much smaller than most casual observers would think. A key finding for policymakers is that there is little value in electronics assembly. Bringing high-volume electronics assembly back to the U.S. is not the path to “good jobs” or economic growth."
Here are some key points of the article:
"It is a common misconception that China, where the iPad is assembled, receives a large share of money paid for electronics goods. That is not true of any name-brand products from U.S. firms that we’ve studied. The breakdown of value in these two iconic Apple products shows why (see charts above).
First, our assignment of profits (which exclude wages paid) to first-tier suppliers is based on the location of their corporate headquarters. There are no known Chinese suppliers to the iPhone or iPad. The iPhone and iPad are assembled in mainland China factories owned by Foxconn, a Taiwan-based firm."
From the conclusion:
"This study also confirms our earlier finding that trade statistics can mislead as much as inform. Earlier we found that for every $299 iPod sold in the U.S., the U.S. trade deficit with China increased by about $150. For the iPhone and the iPad, the increase is about $229 and $275 respectively. Yet the value captured from these products through assembly in China is around $10. Statistical agencies are developing tools to gain a more accurate breakdown of the origins of traded goods by value added, which will be attributed based on the location of processing, not on the location of ownership. This will eventually provide a clearer picture of who our trading partners really are, but, while this lengthy process unfolds, countries will still be arguing based on misleading data.
Those who decry the decline of U.S. manufacturing too often point at the offshoring of assembly for electronics goods like the iPhone. Our analysis here and elsewhere makes clear that there is simply little value in electronics assembly. The gradual concentration of electronics manufacturing in Asia over the past 30 years cannot be reversed in the short- to medium-term without undermining the relatively free flow of goods, capital, and people that provides the basis for the global economy. And even if high-volume assembly expands in North America, this will likely take place in Mexico where there is already a relatively low-cost electronics assembly infrastructure."
MP: Based on the way trade statistics like U.S. imports from China are mis-calcuated and overstated in terms of actual value added, I estimated here that we might actually have a trade surplus with China using a value-added approach. It's an important distinction that Apple products (and other electronic goods) are really only "Assembled in China," and not actually "Made in China." The value of the final assembly in China is pretty small compared to the value added in the U.S., and yet China gets credit for the majority of the value according to the way trade statistics are calculated.
It's probably the case that trade statistics for merchandise exports and imports are pretty outdated and not able to capture the nuances of international supply chains and value-added measurements in a global economy. In previous eras, an import from China or Mexico or Canada was probably really made and assembled in those countries with their domestic content, parts and labor. Now iPods, iPads and iPhones are imported from China, but just a small fraction of the value of those products is actually created in China; yet China gets a majority of the credit for the export value of those products into the U.S. only because final assembly takes place there. With a more accurate accounting of trade flows based on value added, our trade deficit with China would shrink significantly, and might even disappear altogether.
HT: Robert Kuehl