If an American firm pays for manufacturing for a Chinese firm to make something and ship it to America, and an American firm to distribute, only the price they pay for manufacturing and shipping count towards the trade. So the manufacture does not artificially inflate the total trade deficit.
I think that all the article proposes changing is the way the total trade deficit is divided up between trading partners. However, looking at the balance of trade between a pair of countries rather than between one country and all other countries is pointless anyway.
Consider the following simplified situation: there are only three countries in the world, A, B, and C, equally affluent, and they all use one currency, $. A has a trade deficit of $1 billion to B, B has a trade deficit of $1 billion to C, and C has a trade deficit of $1 billion to A.
In the simplified scenario, there is no net transfer of wealth out of A, B, or C, because each has perfectly balanced trade - so there is nothing wrong with that picture.
In summary, the proper solution is to look at total balance of trade per country, not to get too hung up on balances of trade between pairs of countries. The article is trying to solve a non-existent problem.
But Foxconn wholesale buying components from Japan, Germany, Taiwan, still should reflect in Chinese trade balance as imports though. So it can be argued the old system is more transparent and easier to account than this contraption designed to make U.S. trade figures nicer.
Almost all trade deficits are deceptive.
in general imports are very carefully monitored - since they are taxed - while exports, especially invisible earnings, are very approximate.
Until recently the US measured exports purely in tonnage and then averaged their prices. So a ton of wheat = a ton of Windows DVDs
It's actually not clear that trade deficits between nations are meaningful. Suppose country A sells 100 seashells worth of foo to country B and B sells 100 seashells worth of bar to C and C sells 100 seashells worth of baz to A. None of the countries have a trade deficit on the whole, but A has a 100 seashell trade deficit to C. So yes, the trade deficit exists in this example but that doesn't imply directly that A needs to take action to fix it.
I think most outside observers of this three way arrangement would think it sounds fine, where the issues creep up is when foo production requires little labor and baz production is very labor intensive.
Only $6.50 added by Foxconn's assembly step? I'd have expected much more.
Here's the question I emailed to sjobs@apple.com last week:
Subject: Made in the US iPhone?
Hiya. I love my iPhone. I'd be willing to pay more than the $200 that I paid to AT&T if it were assembled in the US.
Do you think enough of the market would embrace a "Made in the US" iPhone version with a $100 (?) premium? Would that be enough of an increase to offset higher labor costs?
While the article plausibly argues that the cost of the iPhone should not be credited entirely to China, it still shows the iPhone as adding to the deficit - the cost should just be creditted to Japan, S. Korea, German and "others" instead of China.
Which isn't an indication that the US trade deficit is an illusion or anything...
This goes for the same in the United States I did some work for a light manufacturing company and the motors, electronics, and small misc parts in the product came from China, the metal base of the product from Mexico, The part that was made in the USA was the assembly.
How exactly has free trade benefitted the majority of the population of the U.S. again?
I see the microeconomic benefits to individual companies: lower costs equals higher margins. Lower prices? You, mister CEO, are fired! Every econ freshman knows to calculate marginal profit times units sold to find the best price in terms of total profit, and the cost of the inputs often has little to do with it, except when elasticity of demand is very high. By and large, you charge what the market will bear, and pass the savings along to the shareowners (and the board and execs, of course)
Having every company outsource and import destroys "the commons" of a nation. Regardless of which other nation the money is going to.
You're talking from the perspective of a pseudo-monopolist, which makes sense when we're talking about iPhones, but all it takes is one entrant charging lower prices and your "best price in terms of total profit" calculation goes down the tubes as consumers switch over to the cheaper alternative.
So you're right, a monopolist does not care at all what the costs of the inputs are but with competition the result is cheaper consumer goods (which has its own vices but that's a different issue...)
Think about it; would you really want to live in a U.S. where every good was made in house? Your cashews would be very, very, very expensive.
I believe the "neo-liberal" solution to this (the reason that Democrats since Clinton embraced free trade) was supposed to be that you make up for the job loss by taxing the rich and then use the proceeds to provide better social services for everyone else. Unfortunately since Clinton they've forgotten the tax the rich part and all we've gotten is the rich getting richer, the decimation of manufacturing industries and an enormous inequality gap.
We've had free trade with countries that have rather specific development plans and policies around industrial development - we know China does. But more significantly, one might well argue Germany's private-public cooperation/policy has been a big part of it remaining an honest-to-God industrialized nation.
I think that all the article proposes changing is the way the total trade deficit is divided up between trading partners. However, looking at the balance of trade between a pair of countries rather than between one country and all other countries is pointless anyway.
Consider the following simplified situation: there are only three countries in the world, A, B, and C, equally affluent, and they all use one currency, $. A has a trade deficit of $1 billion to B, B has a trade deficit of $1 billion to C, and C has a trade deficit of $1 billion to A.
In the simplified scenario, there is no net transfer of wealth out of A, B, or C, because each has perfectly balanced trade - so there is nothing wrong with that picture.
In summary, the proper solution is to look at total balance of trade per country, not to get too hung up on balances of trade between pairs of countries. The article is trying to solve a non-existent problem.