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iPhone Adds $1.9 Billion to US Trade Deficit

Did you know that the iPhone is made in China for a mere $6.50?  It’s false but true:

[T]wo academic researchers estimate that Apple Inc.’s iPhone—one of the best-selling U.S. technology products—actually added $1.9 billion to the U.S. trade deficit with China last year.

How is this possible? The researchers say traditional ways of measuring global trade produce the number but fail to reflect the complexities of global commerce where the design, manufacturing and assembly of products often involve several countries.

“A distorted picture” is the result, they say, one that exaggerates trade imbalances between nations.

Trade statistics in both countries consider the iPhone a Chinese export to the U.S., even though it is entirely designed and owned by a U.S. company, and is made largely of parts produced in several Asian and European countries. China’s contribution is the last step—assembling and shipping the phones. So the entire $178.96 estimated wholesale cost of the shipped phone is credited to China, even though the value of the work performed by the Chinese workers at Hon Hai Precision Industry Co. accounts for just 3.6%, or $6.50, of the total, the researchers calculated in a report published this month.

[...]

“What we call ‘Made in China’ is indeed assembled in China, but what makes up the commercial value of the product comes from the numerous countries,” Pascal Lamy, the director-general of the World Trade Organization, said in a speech in October. “The concept of country of origin for manufactured goods has gradually become obsolete.”  Mr. Lamy said if trade statistics were adjusted to reflect the actual value contributed to a product by different countries, the size of the U.S. trade deficit with China—$226.88 billion, according to U.S. figures—would be cut in half.

Of course, this works both ways.  Many “American” cars are made overseas and “assembled” here.   Conversely, many “Japanese” and “German” cars and trucks are made right here in the US of A.

Stephen Green says, “We’re using 19th Century accounting to track 21st Century design, manufacturing and trade. Something’s gotta give.”  Indeed.

Maybe that “something” is the very notion of trade deficits.   Trying to determine what percentage of a given item is manufactured in one country or another is ultimately arbitrary and futile.   But we get all hot and bothered by it, demanding that our politicians “do something” about it all.  No matter, as George Will likes to point out, that he’s been running a trade deficit with his barber for years with neither of them dissatisfied in the least.

And what does it matter, really?   What’s important isn’t whether the item is “Made in the USA” or “Made in China” but tangible things like collecting taxes, paying wages, and buying stuff.

Presumably, the US Government and its localities are collecting tax money on the sales of iPhones, whether in the form of tariffs on imports, levy on corporate profits, or at the point of sale.  And American workers are being paid for their role in designing, marketing, shipping, and servicing the phones.   And American consumers are improving their lives because, well, there’s an app for that.

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About James Joyner
James Joyner is the publisher of Outside the Beltway, an associate professor of security studies at the Marine Corps Command and Staff College, and a nonresident senior fellow at the Atlantic Council. He's a former Army officer and Desert Storm vet. He has a PhD in political science from The University of Alabama. Views expressed here are his own. Follow James on Twitter.

Comments

  1. john personna says:

    Actually it’s false but false. The Chinese labor component isn’t the whole Chinese component (energy, transportation).

    And I think most people are more concerned with the credit dynamic with China than with their headline sales. If those iPhones are bought on credit, financed by Chinese savers, it doesn’t make us look too smart.

    The joke goes “they gave me this iPhone in return for my worthless green pieces of paper!”

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  2. James Joyner says:

    There’s more truth than ever in that joke!

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  3. [...] Aggravates US Trade GapBarron’s (blog)The iPhone's Trade Deficit ProblemMother JonesOutside the Beltway -NPR (blog) -Daily Marketsall 15 news [...]

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  4. Mercer says:

    “as George Will likes to point out, that he’s been running a trade deficit with his barber for years with neither of them dissatisfied in the least.”

    Stupid analogy. A better analogy is Buffett’s of a farm that spends more then it earns each year and takes on more debt each year to make up the difference

    “.What’s important isn’t whether the item is “Made in the USA” or “Made in China” but tangible things like collecting taxes, paying wages, and buying stuff.”

    It is not important to the corporation where something is made. It is important to the American economy. When big corporations transfer production, r&d and back office operations overseas private employment remains flat even as the population grows. That has been the fate of the US economy in the last decade. A nation of 300 million can’t be all design and marketing workers.

    “The joke goes “they gave me this iPhone in return for my worthless green pieces of paper!”

    It would be a joke if the US economy was not dependent on foreign oil. If other countries decide the dollar is worthless the price of gas will soar and no one in the the US will be laughing.

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  5. Gerry W. says:

    ***And what does it matter, really?***

    Mercer had it right.

    Thirty years ago, the i phone would have been made here and you would have had employed people. Today, there is no upward movement as jobs are being sent overseas. And even with new products, those products can be produced overseas. The dynamics have changed and we must recognize that it is not business as usual in this global economy. We are losing the middle class as old jobs are going overseas, as new jobs are made overseas, means less tax revenue for city, state, and federal government, means more government spending to support those that are unemployed, and it means we have more income inequality. And it is one of the reasons we can’t get out of this recession. The democrats will spend and the republicans will want their tax cuts. The stock market will rise, profits will be made, but we are ending up with a jobless recovery.

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  6. Rob Prather says:

    Gerry,

    You harp on this quite a bit. Thirty years ago the iPhone might have been made here, but it would have been atrociously expensive and a luxury item. Likewise, as they got cheaper over time it would a have been the result of automation. That’s what’s killing manufacturing employment in this country, more than anything else.

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  7. Gerry W. says:

    It is a combination of a lot of things. After the fall of communism, cheap labor countries opened up. It means that some 2 billion cheap laborers want jobs. It is estimated that some 4 to 8 million American jobs went overseas and someone corrected me that it is more than that. Also white collar jobs went to India and Pakistan. Automation is another reason and people will need to be trained on that equipment, instead of just being employed and working on the line. Lean manufacturing and principles is another reason. They reclassify the jobs, change the name of the jobs, and you end up doing a job that 2 or 3 people used to do. The internet is another problem as companies want you to check your personal info and that eliminates public relations people in the front office. Another problem is consolidation, competition, and mergers. And that has to do with the antitrust laws that Reagan put in. And then, you add the recession.

    http://growth.newamerica.net/publications/articles/2010/who_broke_america_s_jobs_machine_27941

    Here is an article that says 42000 factories have closed.
    http://economyincrisis.org/content/more-american-factories-closing

    In my town three main factories of 150, 500, and 1300 employees are closed and so goes the small business. If you are lucky, you can maybe get a job in another town but it will pay less. Add the wear and tear on a car and the cost of gas, and you see it is not worth working. Small towns will struggle as they cannot diversify. Bush came to Ohio several times and talked about free trade and how good it was and we saw the factories close. Clinton, backed up by republicans, signed the agreements and now, each year, it is more and more jobs that are gone. Even listening to a radio station in Canada, they are complaining about the loss of jobs.

    So, with this tax extension, in which we have had since 2001 and 2003, they interviewed a small business guy and he says he will hire another person. I remember when I hired in, a 150 people followed me throughout the year.

    You have Veronique De Rugy, economist from George Mason Univ., answering a call on C-span on jobs and she said it was good for our jobs to go overseas and that we had Wal Mart jobs to go to.

    You have Carlos Gutierrez, former Commerce Secretary and a shill for business, saying that dynamics have not changed. ????????????????

    You have William Cohen, former Defense Secretary, saying India can be a consumer of our exports.

    I can’t believe this thinking. We have given up 30% of our manufacturing and they all say (even Obama) that we are going to rely on our exports.

    I don’t know what will fill the closed factories that are shut down, and especially with globalization and the “i phones” and other widgets can be made anywhere. Why would a Chinese or Indian buy an American product when it will cost more than what they make? And if they make the product, they have no reason to buy from us. The “experts” now say that we will sell our high end products. Okay, to a point, that makes sense. But as China keep growing, they will make high end products also. And that is what they are seeking.

    Listening to Robert Atkinson (Information, technology, and innovation foundation), We lost 30% of our manufacturing. And he says “perhaps the largest lost of manufacturing of any country other than the UK.

    So what we are ending up with is that democrats extending unemployment benefits. We have seen cash for clunkers. And each state wants casinos. The republicans want more and more in tax cuts. The fed wants lower and lower interest rates and more printing of money and a low dollar for exports. And they are not addressing the problems of globalization.

    Palin talks about “free market principles” and that means to me that 2 billion cheap laborers want our jobs.

    In this tax extension bill, employees will only pay 4.2% and not the 6.2% so that they have more cash in our economy. An economy that has half the goods that are foreign made. And it just makes social security to go more broke.

    All of these tax cuts will not effect my town one bit. It is all the above problems.

    Well, need I say, I think they are all nuts.

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