Interesting analysis in the Wall Street Journal (ht to @pkedrosky for the link) of how the component and commercial value(s) from high tech products are attributed in trade statistics – and the misleading conclusions those statistics can draw.
Very reminiscent of a similar analysis Andy Kessler put together a few years ago – also published in the Journal.
Both worth reading.
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.”
The value-added approach, in fact, shows that sales of the iPhone are adding to the U.S. economy—rather than subtracting from it, as the traditional approach would imply.
If China was credited with producing only its portion of the value of an iPhone, its exports to the U.S. for the same amount of iPhones would be a U.S. trade surplus of $48.1 million, after accounting for the parts U.S. firms contribute.