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Made in China?

Dec 26, 2010 • Businesses, Developing Economies, International Trade and Finance, Labor, Macroeconomic Measurement • 317 Views    No Comments

True or false? Is Apple’s iPhone made in China? The answer is true and false.

True.

According to U.S. trade statistics, the iPhone is made in China. Consequently, the iPhone is recorded as a minus for us and a plus for China. It added to our trade deficit and China’s trade surplus with the U.S. by a whopping $1.9 billion during 2009.

False.

According to recent research, trade statistics can be misleading. Yes, the phones are assembled in China and then they are shipped to the U.S. However, researchers say that the value added by the Chinese is only $6.50 out of a wholesale price of $178.96. Instead, we should consider the value of parts that are sent to China but made by firms in 9 countries including Japan, Germany, South Korea and the U.S. In fact, using a value-added approach, the iPhone would add $48 million to U.S. balance of trade totals.

The Economic Lesson

Called net exports, a nation’s trade balance is the value of exports minus the value of imports. Simply defined, exports are goods produced in the U.S. and sold abroad. Imports are goods produced abroad and sold in the U.S. When the U.S. sells domestically produced goods that are worth more than those it imports, it has a trade surplus. It runs a trade deficit when the opposite is true. So, if a country imports a car for $20,000 and exports a tractor for $100,000, it has a trade surplus of $80,000.

However, based on the iPhone, you can see that calculating our trade statistics is much more complicated than seeing what enters and what leaves. According to the director-general of the World Trade Organization, “The concept of country of origin for manufactured goods has gradually become obsolete.”

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