Friday, December 23, 2011

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

31 Comments:

At 12/23/2011 4:31 PM, Blogger morganovich said...

this is precisely why china will be unable to become a wealthy country.

the value add of all their manufacturing jobs is less than making big macs in toledo.

they have little ability to move into the more lucrative forms of production because they lack the respect for intellectual property and freedoms needed to drive and support innovation.

ironically, the "export miracle" that so many are enamored of is really a poverty trap.

they are a workshop for dirty, low value ad labor, but lack the ability to become an advanced information and knowledge based economy.

 
At 12/23/2011 4:32 PM, Blogger David said...

Where is the cost of chips and displays purchased for inclusion in these two products? Maybe in "cost of inputs: materials"??

 
At 12/23/2011 4:41 PM, Blogger Benjamin said...

Trade is interesting. Since we print money and foreigners accept it as payment, what is our trade deficit?

And what does being a "supply sider" mean when we have global supply chains eager to sell to us in exchange for slips of paper (US currency or ultimately, US bonds).

Print way more money.

 
At 12/23/2011 5:19 PM, Blogger sethstorm said...

Whole lot of pro-China folks in the UC university system.

These three people just want to find some way to stop the effective cmpaign against China. By trying to improperly diminish the production's value, they only confirm that those who attack China
are on target and should continue attacking.

It alos demonstrates that a similar attack on Mexico (as well as the slavery-loving region in the US immediately north/east of it, the South) of must be performed, such that there is production in the US, especially in regions normally looked over.

China's role is larger than these researchers wish to admit. They want to defend it only by saying that the jobs that stay in the US are the ones that few people ever get.

 
At 12/23/2011 5:53 PM, Blogger PeakTrader said...

More proof U.S. inflation is overstated. Instead, U.S. real GDP growth is understated.

Of course, some people try harder to create inflation than a central bank facing a deep depression.

And yes, the BLS adjusts prices for lower quality too (and consumers know a bargain when they see one).

 
At 12/23/2011 7:15 PM, Blogger Benjamin said...

GOP toprunner Ron Paul bets against the USA.

But Ron Paul’s portfolio isn’t merely different. It’s shockingly different.
Yes, about 21% of Rep. Paul’s holdings are in real estate and roughly 14% in cash. But he owns no bonds or bond funds and has only 0.1% in stock funds. Furthermore, the stock funds that Rep. Paul does own are all “short,” or make bets against, U.S. stocks. One is a “double inverse” fund that, on a daily basis, goes up twice as much as its stock benchmark goes down.
The remainder of Rep. Paul’s portfolio – fully 64% of his assets – is entirely in gold and silver mining stocks....
At our request, William Bernstein, an investment manager at Efficient Portfolio Advisors in Eastford, Conn., reviewed Rep. Paul’s portfolio as set out in the annual disclosure statement. Mr. Bernstein says he has never seen such an extreme bet on economic catastrophe. ”This portfolio is a half-step away from a

 
At 12/23/2011 9:24 PM, Blogger VangelV said...

they are a workshop for dirty, low value ad labor, but lack the ability to become an advanced information and knowledge based economy.

When was the last time you were in China? From what I have seen the rise has been astounding and the standard of living has increased much faster than anyone could have anticipated.

While I have yet to make up my mind fully on the IP issue it seems to me that China's problems do not stem from having lax patent laws. When the US Patent Office grants patents for gestures I would say that innovation is being stifled.

Stephan Kinsella has argued that patents are a big problem for the free market because companies use them to, "create artificial scarcities of non-scarce goods and employ coercion in a way that is contrary to property rights and the freedom of contract." Many other libertarians have made exactly the same argument and I am starting to take the issue more seriously than I used to.

 
At 12/23/2011 9:29 PM, Blogger VangelV said...

"At our request, William Bernstein, an investment manager at Efficient Portfolio Advisors in Eastford, Conn., reviewed Rep. Paul’s portfolio as set out in the annual disclosure statement. Mr. Bernstein says he has never seen such an extreme bet on economic catastrophe. ”This portfolio is a half-step away from a..."

The way I recall it, people like Mr. Bernstein never saw the crisis coming and were hyping up real estate and equity investments at the top. On the other hand, Dr. Paul warned against the problems with all fiat currencies, the malinvestments caused by the manipulation of interest rates, and made his bets according. It seems that he was right while people like Mr. Bernstein and the writers at the WSJ were wrong. Perhaps they should ask him to give them a few pointers.

 
At 12/23/2011 9:33 PM, Blogger Ed R said...

Looking at the value-biased words sprinkled throughout the article one thinks the authors started with a conclusion and then selected and presented the data to support it.

 
At 12/23/2011 10:41 PM, Blogger NormanB said...

MP: Please tell us where/how China is getting the $500B per year in foreign reserves.

 
At 12/24/2011 1:05 AM, Blogger juandos said...

"Those who decry the decline of U.S. manufacturing too often point at the offshoring of assembly for electronics goods like the iPhone"...

David Rotman at Technology is doing a bit of decrying: Can We Build Tomorrow's Breakthroughs?
Manufacturing in the United States is in trouble. That's bad news not just for the country's economy but for the future of innovation

 
At 12/24/2011 2:38 AM, OpenID Sprewell said...

morganovich, I wouldn't write off Chinese tech so easily. The Baidu search engine still dominates in China and HTC is now an international brand, likely because it's in Taiwan and away from mainland govt influence. I was surprised to read recently that Taiwan has passed Japan in GDP PPP per capita. The knowledge economy is now global because of the internet and it is very difficult to squelch it, though the Chinese govt firewall may be doing so to some extent. With open source software, cheap hardware, and many free sources of information online, essentially the only bottleneck on software innovation, which is where all the opportunity lies, is the limited imagination of most techies. ;)

 
At 12/24/2011 3:49 AM, Blogger PeakTrader said...

NormanB says: "Please tell us where/how China is getting the $500B per year in foreign reserves."

China's foreign reserves are $3.2 trillion (which is the accumulated amount).

In 2007, China's exports were $1.22 trillion and imports were $956 billion for a trade surplus of $262 billion (in 2007, China had a $258 billion trade surplus with the U.S. alone).

China sold its exports too cheaply (which caused global imbalances), while imports were relatively expensive.

China had to make up in volume what it lost in value, e.g. to maintain employment.

If the true value of China's exports was $1.5 trillion in 2007 (instead of $1.2 trillion), then it lost $300 billion trading with the rest of the world (if imports were sold at fair value).

 
At 12/24/2011 11:57 AM, Blogger Junkyard_hawg1985 said...

Mark,

Awesome Post! This post explain why the U.S. has accumulated an $8 trillion trade deficit since 1960, yet our net income from overseas investments continues to set records.

 
At 12/24/2011 11:57 AM, Blogger Junkyard_hawg1985 said...

"MP: Please tell us where/how China is getting the $500B per year in foreign reserves."

It is called foreign direct investment (FDI).

 
At 12/24/2011 12:03 PM, Blogger Buddy R Pacifico said...

Apple's ability to manage the global supply chains for the iPad and iPhone, are under recognized and appreciated. Languages, distances, cultures, personalities, time sensitivity, rigid specifications, political considerations and distribution are some of the ingredients that must be organized and managed. Apple's supply chain managment is under-valued.

Regardless, China's foreign currency reserves keep building and that is indisputable.

 
At 12/25/2011 10:34 AM, Blogger PeakTrader said...

Buddy says: "Regardless, China's foreign currency reserves keep building and that is indisputable."

China not only loses from selling its goods too cheaply, which induces demand (or exchanging cheap exports for expensive imports), it loses by lending its foreign currency (e.g. dollars) too cheaply (through inflation, interest rates, and currency exchange rates).

Moreover, the U.S. gains indirectly from China's oil-intensive industries, since oil is priced in dollars on the world market, i.e. China pays a high price for oil, and then those dollars are invested (or lent) in the U.S. at low rates (e.g. by the Saudis).

The U.S. offshored oil-intensive industries, with declining prices and profits, and shifted resources into industries that produce goods that weigh little, or nothing, which made U.S. production "lighter."

Much of this was facilitated by Wall Street's pressure on U.S. corporations to maximize profits, which also resulted in higher U.S. living standards, for the masses.

 
At 12/25/2011 11:17 AM, Blogger PeakTrader said...

How can you count a widget when it's invisible? Why U.S. real GDP is understated:

Part I

Why the Economy Is a Lot Stronger Than You Think
FEBRUARY 13, 2006

In a knowledge-based world, the traditional measures don't tell the story. Intangibles like R&D are tracked poorly, if at all. Factor them in and everything changes.

What if we told you that businesses are investing about $1 trillion a year more than the official numbers show? Or that the savings rate, far from being negative, is actually positive? Or, for that matter, that our deficit with the rest of the world is much smaller than advertised, and that gross domestic product may be growing faster than the latest gloomy numbers show? You'd be pretty surprised, wouldn't you?

Everyone knows the U.S. is well down the road to becoming a knowledge economy, one driven by ideas and innovation.

What you may not realize is that the government's decades-old system of number collection and crunching captures investments in equipment, buildings, and software, but for the most part misses the growing portion of GDP that is generating the cool, game-changing ideas.

"As we've become a more knowledge-based economy," says University of Maryland economist Charles R. Hulten, "our statistics have not shifted to capture the effects."

The statistical wizards at the Bureau of Economic Analysis in Washington can whip up a spreadsheet showing how much the railroads spend on furniture ($39 million in 2004, to be exact). But they have no way of tracking the billions of dollars companies spend each year on innovation and product design, brand-building, employee training, or any of the other intangible investments required to compete in today's global economy.

That means that the resources put into creating such world-beating innovations as the anticancer drug Avastin, inhaled insulin, Starbuck's, exchange-traded funds, and yes, even the iPod, don't show up in the official numbers.

As Greenspan would be the first to tell you, it's a lot easier counting how many widgets the nation produces in a year than quantifying the creation and marketing of knowledge. After all, we're talking about intangibles: brand equity, the development of talent, the export of best practices.

By the early '90s, Greenspan was becoming increasingly frustrated by the official numbers' inability to explain a rapidly evolving economy.

In 1996 and 1997 he refused to accept conventional data telling him that productivity growth was falling in much of the service sector, noting -- correctly, as it turns out -- that "this pattern is highly unlikely." He also pointed out that the official numbers for consumer inflation were too high.

 
At 12/25/2011 11:18 AM, Blogger PeakTrader said...

Part II

At the Washington offices of the BEA, J. Steven Landefeld, who became director in 1995, felt pressure to include numbers that better reflected the knowledge economy. Landefeld isn't a rash fellow, and the pace of change at the BEA, while quick for a statistical agency, would be called deliberate by most.

But in 1999 -- six decades after Kuznets laid the groundwork for calculating GDP -- Landefeld and the BEA decided to break with the past.

The BEA started treating business spending on software as a long-lived investment. The decision was overdue. Companies were spending more than $150 billion annually on software, far more than the $100 billion for computer hardware. And the software often stayed in use longer than the hardware.

Silly as it may seem now, it was a revolutionary change at the time. But over the past seven years the economy has continued to evolve while the numbers we use to capture it have remained the same.

Globalization, outsourcing, and the emphasis on innovation and creativity are forcing businesses to shift at a dramatic rate from tangible to intangible investments.

Want to see how this works? Grab your iPod, flip it over, and read the script at the bottom. It says: "Designed by Apple in California. Assembled in China."

Where the gizmo is made is immaterial to its popularity. It is great design, technical innovation, and savvy marketing that have helped Apple Computer sell more than 40 million iPods.

Yet the folks at the BEA don't count what Apple spends on R&D and brand development, which totaled at least $800 million in 2005.

Rather, they count each iPod twice: when it arrives from China, and when it sells. That, in effect, reduces Apple -- one of the world's greatest innovators -- to a reseller of imported goods.

But look at how our perception of the economy changes once you add in things like R&D and brand-building.

The published data show that total investment -- business, residential, and government -- has been falling over the past three decades as a share of national spending, while consumption has been rising. Add in the intangible investments provided by our three economists, and the picture changes completely.

Total investment rises, going from 23.8% of national spending in the 1970s to 25.1% in the early 2000s -- much higher than the 18.3% the conventional numbers show.

That helps explain why the economy has sustained strong productivity growth, and why foreign investors continue to pour money into the U.S.

Ricardo Hausmann, director of Harvard's Center for International Development, believes it should be. He describes these cross-border flows of knowhow as "dark matter."

Hausmann notes that U.S. multinationals consistently earn higher rates of return than their foreign counterparts -- an average of 6% on foreign operations since 2000, vs. the 1.2% foreign multinationals earn in the U.S., according to the latest BEA figures.

From that, he infers that the multinationals are benefiting, in part, from knowledge exported from the U.S., a country with faster productivity growth than the rest of the industrialized world.

 
At 12/25/2011 12:02 PM, Blogger Buddy R Pacifico said...

Peak Trader draws a quite the benign picture of China, as an enabler of U.S. wealth, with his new Etcha-a-Sketch.

"China not only loses from selling its goods too cheaply, which induces demand (or exchanging cheap exports for expensive imports),..."

"What if we told you that businesses are investing about $1 trillion a year more than the official numbers show?"

"Everyone knows the U.S. is well down the road to becoming a knowledge economy, one driven by ideas and innovation."

So, Peak would want China to buy U.S. produced knowledge products such as software, pharma and thousands of others. Almost all Americans want this.

Does Peak realize that almost all business software used in China has been pirated?

Any product with a trademark or copyright, of U.S. origin, is fair game for taking in China.

If U.S. companies want to sell in the Chinese market, they are forced into joint ventures, so that trade secrets are shared.

The U.S. Chamber of Commerce has been at the forefront of the fight to protect American Intellectual Property.

Chinese hackers have just hit the Chamber. From Fox News: "
It isn't clear how much of the compromised data was viewed by the hackers. Chamber officials say internal investigators found evidence that hackers had focused on four Chamber employees who worked on Asia policy, and that six weeks of their email had been stolen."


The Etch-a-Sketch can't draw details like the above. Yes, potential U.S. GDP is understated, because billions and billions of sales are lost to theft. It looks like it is only going to get worse.

The U.S. is going to thrive, because of new Free Trade Agreements with countries that protect foreign Intellectual Property. Other trading arrangements will be of lesser importance, thus becoming truly benign.

 
At 12/25/2011 12:41 PM, Blogger PeakTrader said...

Buddy, are you saying China will be producing pirated movies, Ford F-350s, Boeing 767s, etc. as good as the U.S.?

Even their Wu-Mart can't compete with Wal-Mart.

China is also hurting itself:

China's Piracy & Counterfeiting Problems

"China's inability to safeguard intellectual property rights limits the manufacturing of high-end technology goods in China and erodes the value of brand names because the public confuses their products with shoddy counterfeits.

Domestic manufacturers and suppliers can benefit initially from copying other software or content but ultimately will face the same problem themselves from smaller competitors if they develop into a larger player.

Foreign direct investment in China is limited by fears of counterfeiting. Many Western companies who possess proprietary technology are hesitant to move production, let alone research and development to China, for fear it will be copied. This means China is losing valuable opportunities to move its production to more sophisticated, higher value-add and higher margin products, as well as missing opportunities to train its workforce on more sophisticated product development techniques.

Chinese counterfeits are hurting the country’s own future export potential. A recent case of counterfeit ingredients poisoning medicines in Panama and Australia has put authorities there on guard against all Chinese imports of food and medicine. Similarly, dangerous fake dog food ingredients from China have made U.S. consumers wary of any foodstuffs coming from there."

 
At 12/25/2011 1:02 PM, Blogger Buddy R Pacifico said...

Peak,

You got a better drawing set for Christmas. The picture you have drawn in your response is more representational of the situation.

Merry Christmas.

 
At 12/25/2011 10:55 PM, Blogger James said...

Once again an argument for free trade based on data that can not be checked. Once again I am told to believe free trade advocates instead of my own eyes. We have more free trade now than we have ever had yet the vast number of jobs that were promised to get each of those trade deals passed have yet to show up as a net increase in employment.

Things will likely look better between now and the election as Obama does what he can to fake us out by manipulating the leading indicators but long term no tariffs no recovery. Free trade is the problem not the solution.

Perhaps those of you who think I am wrong might show enough courage to put a date on the recovery without tariffs you think is coming. One year? Two Years? Five Years? Ten Years? Twenty Years?

 
At 12/26/2011 12:09 AM, Blogger PeakTrader said...

James, we need to promote entrepreneurship, not prevent it.

And, we need a better education system for the masses.

So, Americans can acquire needed skills for new high-paying jobs.

 
At 12/26/2011 2:17 AM, Blogger Ron H. said...

James: "Perhaps those of you who think I am wrong might show enough courage to put a date on the recovery without tariffs you think is coming. One year? Two Years? Five Years? Ten Years? Twenty Years?"

There is no recovery in sight, but tariffs have nothing to do with it.

It's pointless to discuss this with you, so I won't. You have been presented with some excellent arguments that tariffs cause more harm than good, (I don't mean mine), and you continue to come back to paste the same tired comment again and again.

Unless you favor top down central planning on the order of Cuba or North Korea, where the people aren't important in the scheme of things, it's hard to find any evidence for your claim.

 
At 12/26/2011 8:09 AM, Blogger juandos said...

"From what I have seen the rise has been astounding and the standard of living has increased much faster than anyone could have anticipated"...

Well vangeIV if the people know what they're talking about that rise in the standard of living might hit some sizable road bumps in the near future...

China Insolvency Wave Begins As Nation's Biggest Provincal Borrowers "Defer" Loan Payments

 
At 12/26/2011 10:18 AM, Blogger VangelV said...

Once again an argument for free trade based on data that can not be checked. Once again I am told to believe free trade advocates instead of my own eyes. We have more free trade now than we have ever had yet the vast number of jobs that were promised to get each of those trade deals passed have yet to show up as a net increase in employment.

The loss of jobs has nothing to do with free trade. It is driven by the best anti-protectionist argument ever made.

 
At 12/26/2011 10:36 AM, Blogger VangelV said...

Things will likely look better between now and the election as Obama does what he can to fake us out by manipulating the leading indicators but long term no tariffs no recovery. Free trade is the problem not the solution.

Keep in mind that Bush enacted tariffs on steel, tires, and all kinds of goods that made products more expensive for American consumers. Bush grew the size of government and the debt faster than Clinton. He started a war that has wasted $1 trillion in Iraq. So while Obama is an idiot let us not pretend that the Republicans are any better. They only oppose big government when they are out of power. When they are in power and control everything they are even more expansionist than the Democrats.

Perhaps those of you who think I am wrong might show enough courage to put a date on the recovery without tariffs you think is coming. One year? Two Years? Five Years? Ten Years? Twenty Years?

No recovery is coming without serious cuts to the size of government and to a serious reform of the regulatory environment. While the Fed and Treasury can kick the can down the road for a while that will only make the eventual correction much worse.

The problem for the US is the ignorance of the voter. The average Democrat and Republican is ignorant of economics and cares more about politics than logic and reason. Until they abandon their mythology and see things as they are they will never have the courage to choose principled men and women as their representatives. And without that, the people will never be allowed to fix the problems that the government created.

 
At 12/26/2011 11:22 AM, Blogger VangelV said...

Well vangeIV if the people know what they're talking about that rise in the standard of living might hit some sizable road bumps in the near future...

China Insolvency Wave Begins As Nation's Biggest Provincal Borrowers "Defer" Loan Payments


This is not a surprise. In the mid 1990s I stayed in a hotel that was built in an empty city. During my visit to Xi'an a few years ago my son pointed out buildings that were being put up using what were very shoddy methods. For two years I lived across the street from an international hotel that was never opened because the engineers had made errors in their stress calculations. The fact that many of these errors would have to be corrected by the market is not surprising. But this is what went through two centuries ago when manias built too many subsidized railways and canals and when we saw bubbles in farm land, transportation shares, real estate, etc.

I still remember a conversation with a Shaanxi government economist who recommended to me that if I wanted to understand his field I needed to stop wasting time with Keynes and read Rothbard and Mises. He said that in the end a big bubble would lead to a major collapse that would make China's USD reserves worthless. But when that time came and the dust settled China would have a lot of new bridges, roads, highways, schools, universities, railways, apartment building, factories, ports, airports, etc., that could be used by future generations. The bigger problem would come in the US where bankrupt people without jobs would hit the streets in protest and the US government would find that it could no longer exchange real goods and services for newly printed paper. And at that time American investors will find that without real saving capital formation will be very difficult.

As Europe melts down and European trade partners slow down the US could begin to look much better to some speculators. But the problem is that there is little to justify long term optimism. A stronger USD will make it very difficult for American borrowers to repay their loans. Given the financial difficulties for the states and municipalities, as well as the problems in the banking system the Fed will choose another round of monetary inflation. That would make any advances short term and by the end of 2012 the economy should be on the brink of collapse. (If it doesn't get there sooner.)

China's turmoil will mean that the government will have to loosen up its control and stop meddling. That should make things better in the long run for the people even if it means political ruin for some withing the ruling elite. But America's turmoil will come in a mature economy that is on the brink of collapse. As more and more boomers begin to figure out that they will never be able to afford to retire as they had planned, support for the current political system will fall apart and at least one of the major political parties will be on the brink of extinction. Sadly, there is likely to be violence as some idiots on both the left and right initiate violence against their fellow citizens.

I would worry less about the affairs of other nations and pay more attention to what is going on at home.

 
At 12/27/2011 5:40 AM, Blogger Rosewood said...

Really very nice blog post,I must say the blog post is really very informative.E-commerce web development gives a solid foundation to your website, hence making it a reliable place for business.Pros and cons u really define very well...
Thank for the post.

 
At 12/29/2011 6:55 PM, Blogger ed said...

Just a couple of comments i would like to make taking the example of i-phone (the first chart). Please correct me if i’m wrong because i’m very curious to know your point of view:

- first of all we have Apple having a 58,5% margin which is not smth. normal. Not many products can have that kind of margins. That 58,5% is profit which means it goes to Apple shareholders and not employees (unless they own Apple shares) but for sure it is part of the added value.
- cost of input non China labour is 3,5%, and if i understand correctly a part of that must be the wages of American employees (design, software development, product management, marketing as it is written in the article)
- my conclusion is that we have here an exceptional product with an exeptional high margin. And there is that margin that makes the largest part of the added value. The input in the product value of China labour and the US labour (part of the non-China labour in the chart) must be more or less the same.
- Last but not least the article states that for each i-phone trade deficit is increased by $229. This have to be the value of the imported product before adding the Apple almost 60% margin. If China is adding smth. like $10 to that figure it means that the rest must be imported by China and that numbers should be counted in the China surplus figure. The same concerns the US figures, as at this very moment the added value in the US is composed only by part of the US labour which is low. So there is nothing wrong with the US trade deficit too. The largest part of the added value which is the margin is added latter, after importing the product.

 

Post a Comment

Links to this post:

Create a Link

<< Home