How the iPhone Widens the United States Trade Deficit with the People's Republic of China
By Yuqing Xing and Neal Detert
In this paper, the authors use the iPhone as a case to show that even high-tech products invented by United States (US) companies will not increase US exports, but on the contrary exacerbate the US trade deficit. The iPhone contributed US$1.9 billion to the US trade deficit with the People's Republic of China (PRC). Unprecedented globalization, well organized global production networks, repaid development of cross-country production fragmentation, and low transportation costs all contributed to rational firms such as Apple making business decisions that contributed directly to the US trade deficit reduction. Global production networks and highly specialized production processes apparently reverse trade patterns: developing countries such as the PRC export high-tech goods—like the iPhone—while industrialized countries such as the US import the high-tech goods they themselves invented. In addition, conventional trade statistics greatly inflate bilateral trade deficits between a country used as export-platform by multinational firms and its destination countries.
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- Dan Lieberman
(posted 30 June 2011 / 08:39:11 PM)
Commentators indicate that, although IPhone parts and assembly are mostly from foreign manufacture, the IPhone sales, which is profit plus added value, don't degrade the US trade balance. If all sales were from the domestic office to foreign importers, this would be true, but aren't they also from foreign subsidiaries?
Shouldn't we also consider that the IPhone sales only help Apple's profits and not the US economy? By purchasing IPhones, US workers, who earn little from Apple's manufacture, steer purchasing power from domestic products to a foreign product, making the Apple corporation rich and US workers with increasingly lesser jobs.
- Jianmang Li
(posted 25 January 2011 / 12:11:02 AM)
There are two important issues that authors of this research did not take into account.
1. It is not enough to list only the trade data of two countries. The IPhone is export from US to all countries in the world. One interesting example is that it also export to China. Yes US import the IPhone at cost but it export to China at whole sale price.
2. Multinational such as Apple, the internal transfer pricing is of great important. For example, the IPhone are shipped from China to US at production costs. This indeed is trade deficit for US. But if Apple invoice IPhone distributors from US, then this is US export (although in real live the product never leave China) to China which is in much higher price. In this why, the US might well be in trade surplus against China, and the IPhone will also helps US trade in surplus against all countries that import IPhone.
Take all these issues into consideration. The IPhone definitely help US to close the trade deficit against all countries. Depending how many unit are sold and Apple company internal transfer pricing, it well could be the even the trade against China is in surplus. i.e. #Unit sold in China X export price > #Unit shipped from China X cost price. If that is the case, then the conclusion of this work is all wrong. So this work should be redo.
(posted 05 January 2011 / 09:21:25 AM)
Yes, we must look at international trade in this new way, in order to keep up with globalization --- the international supply chain and the big geographical footprints of large companies (spanning many nations). We can't just look at simple data on sovereign states anymore, otherwise our thinking will be distorted. Frustrated country policymakers are still using old dials, gauges, and measurements geared towards sovereign states, hence failing to capture the true supply chain picture.
Furthermore, globalization has also given rise to the large corporates as they become more efficient and developed and influential to global economics. It seems large corporates and large industries are now actually driving economies (and hence global trade). Sovereign states are diminishing in stature to just business addresses for the corporates. This excellent paper would also suggest to us that analysis of the global trade should also include the corporate dimension. The sovereign state dimension alone is an outdated way to see the world.
- Thoo Lee Ming
(posted 17 December 2010 / 12:51:41 PM)
The author presented a very interesting angle to the entire trade deficit issue. Although I am agreeable that profit maximization is critical for the siting of assembly of iPhones to done out in China, I believe there are other critical factors to be considered.
The author has shown that most of the components are manufactured out in North Asia. Hence apart from labour cost, the author should relook into the cost of supply chain; logistics required to move the components across the world, indirectly impacting the time and cost.
The views expressed in this paper are the views of the authors and do not necessarily reflect the views or policies of the Asian Development Bank Institute (ADBI), the Asian Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms.