

Is the iPhone bad for the American economy? - eande
http://curiouscapitalist.blogs.time.com/2011/01/11/is-the-iphone-bad-for-the-american-economy/

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nostromo
> China gets the credit for 100% of the iPhone's export value, even though it
> is only assembling the product designed elsewhere from parts that are made
> elsewhere.

More than anything, this just points to the absurdity of the way these metrics
are calculated. An American company sells something to an American consumer --
along the way the product is assembled in China for tens of dollars -- and the
American trade deficit between the US and China grows by $500 for each unit
sold. Ridiculous.

~~~
riobard
No, it's not.

The components that China imports from elsewhere to assemble iPhones will be
credited as China's import value. The same happens recursively for those
countries that export the components to China until it eventually traces back
to U.S. export.

If you just look at the difference between China and the U.S., then yes it
will look bad. But the two thing will cancel out each other in the whole
system.

The metric is fine. Just don't take it at face value. The sad part is that it
is often abused for political reasons.

~~~
nostromo
Not really. Check out this WSJ article:
[http://online.wsj.com/article/SB1000142405274870482810457602...](http://online.wsj.com/article/SB10001424052748704828104576021142902413796.html)

"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."

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Eliezer
I question the assumption that Americans need jobs more than Chinese do.

Does anyone else ever read this sort of thing and just get _floored_ by the
implicit, unquestioned calculus which says that benefits to Chinese workers
are worth nothing and that their lost jobs and misery are completely
unimportant, so that the only relevant point under discussion is the number of
American jobs? Coming next: Someone realizes that many Chinese people have
kidneys which could be transplanted into Americans, thus resulting in an
improvement in the average American kidney.

~~~
johngalt
Furthermore:

Adding a job in China isn't really in competition with adding a job in
America. If anything there is a synergy. If Chinese factories can pump out
goods cheap for American designers, that means we can hire more designers, and
profitably sell more things globally.

~~~
Eliezer
I don't _expect_ them to understand that part. Ricardo's Law of Comparative
Advantage is non-obvious. The proposition that Chinese workers are sentient,
and therefore objects of moral value, is somewhat more elementary.

------
jessriedel
>If production was moved from China back to the U.S., they figure that Apple
could still get an acceptable profit even though labor costs incurred in the
manufacturing process would be significantly higher, while contributing to
U.S. jobs and exports:

You mean if production was moved from China back to the U.S. _through
government intervention_? Then there would still be an "acceptable", _as
determined by the government_ , profit?

I don't mind editorials, but I'd wish they would make their politics explicit
rather than hiding behind the allure of objective reporting.

~~~
dandelany
> You mean if production was moved from China back to the U.S. _through
> government intervention_?

Oh, come on, it's a hypothetical. They're not seriously suggesting that it
will or should be done, and therefore they don't have to provide a _how_.
They're just running the numbers for the sake of a comparison. You're
overreacting.

> Then there would still be an "acceptable", _as determined by the government_
> , profit?

Um, no. As determined by researchers Yuqing Xing and Neal Detert from the
Asian Development Bank Institute, authors of the study, and the people that
came up with the _purely hypothetical_ scenario.

------
johngalt
So if I understand the process:

1\. American company creates a design in an air conditioned office in CA.

2\. The Chinese company produces units from that design for <$7 a piece under
relatively terrible working conditions.

3\. The American company then sells the completed devices for hundreds of
dollars taking pretty much all the margin for themselves.

It sounds like we are already the benefactors of the current arrangement.

The article is lamenting about how unfair it is to America because we can't
take that last $7 off the table? Even I'd call that greedy.

~~~
dandelany
It's not really that simple. First of all, from the article:

"It costs only US$6.50 per unit to assemble all parts and components into a
ready to use iPhone. The assembly cost accounts for merely 3.6% of the total
manufacturing cost."

So the Chinese company _assembles_ (not produces) units for $6.50 a piece,
which is only a tiny fraction of the total manufacturing cost. The other
$180.55 of the cost of manufacturing comes largely from American countries.

And no, the article is _not_ saying it's unfair that we can't take that last
$7. In fact, just the opposite. It's lamenting the fact that most trade
deficit calculations use the _entire manufacturing cost_ (~$190 in this case)
rather than just taking into account the value added ($6.50) by the exporting
country. Calculating the figure this way makes the situation seem much more
dire than it actually is, which results in extremist cries for a trade war.
The author of this paper seems to think the $7 of value added by China is
perfectly fair, and he's just trying to get others to realize that this figure
is more accurate and applicable than the standard calculation.

~~~
bryanlarsen
Only a small fraction of the parts in an iPhone come from America -- the
majority come from Taiwan, Japan, China and 3 other countries. So yes, China
probably gets more of the entire manufacturing cost of the iPhone than the US
does. But not by much. The US, of course, should be able to book that sweet
sweet margin of profit that Apple enjoys. (Or should the Bermuda tax haven
Apple presumably employs book the profit?)

------
jamesaguilar
Only if you believe the purpose of an economy is to minimize its trade
deficit. How preposterous.

------
ghshephard
Excellent article that works through all the nuances of international trade,
in particular the economics and reality of trade with China on high technology
products. I went into it worried about the link bait tunnel, but came out
quite pleased with the overall analysis.

I particularly like this line (quoted) form the WSJ: "Trade has always
benefited the U.S. economy. So rather than launching a trade war with China
over $6.50, here's a better agenda for the 112th Congress: Focus on policies
that will help Americans and U.S. companies better capitalize on a global
economy."

------
bryanlarsen
Actually, the number should be even higher in favour of America. If an iPhone
that contains $171 worth of parts (source Broadpoint AmTech) and $6.50 worth
of labor sells for $500 from China to Europe, currently China gets credit for
$500 worth of exports and gets "charged" for the parts it imports from the US,
Taiwan, Japan, etc. However, shouldn't the US get credit for the
500-171-6.55=322.50 worth of "value add" that it's design and marketing adds
to the bag of parts and labour? In other words, the iPhone should be adding
over a billion in "exports" to the US economy, rather than being almost 2
billion in "imports" as is currently calculated, or adding 50 million to
exports as the Time article proposes.

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duke_sam
Hasn't Andy Grove been talking about this for a while?

[http://www.bloomberg.com/news/2010-07-01/how-to-make-an-
amer...](http://www.bloomberg.com/news/2010-07-01/how-to-make-an-american-job-
before-it-s-too-late-andy-grove.html)

~~~
bryanlarsen
No, Andy Grove is on the other side of the debate. This article says that the
iPhone is good for the economy. It's Andy Grove that's saying its bad for the
economy.

------
webXL
I have a trade deficit with my grocery store. I'm pretty sure most inhabitants
of the industrialized world do. Why isn't Time running a story on that?

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pedanticfreak
The sooner these trade metrics are recalculated the better. The misinformation
from bad trade data can be disasterous for economic policy and ammo for
fruitless political infighting.

