Thursday, December 16, 2010

Does the Iphone add to the trade deficit?

Apple's blockbuster Iphone is made in China. Last year Apple imported $1.9 billion worth of Iphones from China. Making the US-China trade deficit worse by $1.9 billion.
But, the Chinese merely assembly the I-phones. They have to import all the parts. Of the $178.96 wholesale cost of the Iphone, China only gets 3.5% or $6.50 a phone. 6% of the cost comes from US made parts, nearly twice the value add of China. The big hitters are Japan (34%) Germany (17%) and South Korea (13%)
But the Commerce Dept just credits the full price of the Iphones to China, since that's where they come from. Nobody has the time or expertise to do a manufacturing cost breakdown of every imported manufactured product.
From a standpoint of computing the US trade deficit it probably doesn't matter. Whether you charge the Iphones all to China, of split it up by national content, it's still an import. To us, it doesn't matter all that much who the trade deficit is with, it matters that we have such a deficit.
To the Chinese it matters a good deal. The Americans are pressuring China to revalue their currency upward to reduce their trade deficit. If the Iphone costs were partly laid upon Japan, Germany and South Korea, it would help the Chinese resist American pressure.
The most interesting thing is the narrow slice of value add given to China. For that little work, I'm surprised Apple makes them in China. Better to make them at home, under Apple Corp control. It's easier to keep the quality up in your own factory. And, you keep your technology to yourself, rather than sharing it with a potential competitor.

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