The iPhone Is 1% of the U.S.-China Trade Deficit?*


In many ways, Apple is the ideal company for the next American economy. It's cutting edge, wildly innovative, and it makes products that other countries want and will pay us for.

But according to a new paper by Yuqing Xing and Neal Detert, Apple's iPhone contributes significantly to our trade deficit because so much of the hardware is made and assembled overseas and then shipped to the United States.

The abstract is below:

Even high-tech products invented by American companies will not increase the US exports, but to the contrary exacerbate the US trade deficits.

The iPhone contributed US $1.9 billion about 0.8% of the US trade deficit with PRC in 2009. Unprecedented globalization, well organized  global production networks, repaid development of cross-country production  fragmentation, and low transportation costs all contribute to rational firms such as Apple making business decisions that contributed directly to the US trade deficit. Global production networks and highly specialized production processes apparently reverse conventional trade patterns so that developing countries, such as PRC, export high-tech  goods--like the iPhone while industrialized countries, such as the US, import 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. Based on the value-added approach, the iPhone trade would generate US$48 million trade surplus for the US.

Read the full story in WSJ.

*Update: As Jim Fallows points out, and I did not, the most important takeaway from the piece is not the first bold sentence in the abstract above, but rather the last bold sentence. A more sophisticated approach to global trade stats that pays attention to where value is added to a product rather than only to its final point of assembly completely changes the story about the iPhone.

Officially, the entire $180 wholesale cost of a shipped iPhone is credited to China. This is mostly because China is the final point of assembly. However, if you take a closer look at which countries and companies produce the electronics, casing and other manufacturing that make up the final iPhone product, you'll see that China contributes minuscule value to the phone's components and labor.


According to this more sophisticated value-added approach, illuminated in the graph above, iPhone sales (vis a vis China) add to the U.S. economy rather than subtract $1.9 billion, as official trade statistics would imply. Author Andrew Batson writes: "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."

Jump to comments
Presented by

Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

Get Today's Top Stories in Your Inbox (preview)

Social Security: The Greatest Government Policy of All Time?

It's the most effective anti-poverty program in U.S. history. So why do some people hate it?

Elsewhere on the web

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register. blog comments powered by Disqus


Adventures in Legal Weed

Colorado is now well into its first year as the first state to legalize recreational marijuana. How's it going? James Hamblin visits Aspen.


What Makes a Story Great?

The storytellers behind House of CardsandThis American Life reflect on the creative process.


Tracing Sriracha's Origin to Thailand

Ever wonder how the wildly popular hot sauce got its name? It all started in Si Racha.


Where Confiscated Wildlife Ends Up

A government facility outside of Denver houses more than a million products of the illegal wildlife trade, from tigers and bears to bald eagles.


Is Wine Healthy?

James Hamblin prepares to impress his date with knowledge about the health benefits of wine.


The World's Largest Balloon Festival

Nine days, more than 700 balloons, and a whole lot of hot air



More in Business

Just In