Is the iPhone bad for the American economy?
curiouscapitalist.blogs.time.com
curiouscapitalist.blogs.time.com
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.
The calculation of national trade deficit is a matter of strategic import at a number of Japanese companies, which have scale sufficient that companywide policy registers on them. (I live in Japan's manufacturing heartland, and work professionally in the ambit of a particular company which makes, among other things, automobiles. That company is, to say things mildly, rather large.)
Back in the 1980s, when the US/Japan trade deficit was a source of friction between the two countries, there was great popular unrest in the US about it, including demonstrations where Japanese cars were destroyed to make a point. This unrest predictably had concrete policy consequences. Those policy consequences materially impacted the operations of several large Japanese companies, including that automobile manufacturer.
So they put their heads together with the PR teams and hacked the system. One hack was sharply curtailing the amount of final assembly they do. As I phrased it once, a Japanese chasis, Japanese camera, Japanese CPU, Japanese antenna, Japanese software, and Chinese paper box is a Chinese cell phone when the governments run their numbers. Journalists and politicians don't second guess them, because they're mostly ignorant. This keeps anti-Japan unrest to a minimum and is part of the reason why economic relations between the countries are so cordial now despite fairly little materially changing.
Japan historically has a contentious relationship with China. A portion of the discontent with globalism which was once directed at Japan is now directed at China. Many here would consider this to not be a bug.
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.
"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."
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.
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.
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.
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.
If technological progress has taught us anything, it's that the manufacturing jobs in question are simply not going to exist for very long. So it's probably for the best to be forced into a design- and service-based economy, before automation obviates these jobs altogether.
Forcing manufacturing back into the economy would be precisely the sort of ill-conceived, short-term, band-aid solution-that-makes-things-worse-in-the-end that's all too common in US political discourse and legislation.
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.
"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.
Deleted comment
In terms of physical facilities, it is an awesome place to work. Especially by local standards. The only thing that really sucks about it by western standards is the pay and the hours. And that it's, you know, located in an industrial part of southern China. The weather is much nicer in Cupertino, and when you're at HOME (or in the communal dorms on-site) the air conditioning in Dongguan is going to suck because outside the factory there's no backup diesel generator for when you get a brownout or blackout. Which happens a couple times a day. (or did about ten years ago when I was there last)
Designers want to design; Cupertino might be the best place for that unless what you're designing is the production process. But if factory work there paid anything like a western wage it'd be a pretty attractive option for factory workers here. Although it might be hard if you don't speak Mandarin and Cantonese - I had a translator.
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."
http://www.bloomberg.com/news/2010-07-01/how-to-make-an-amer...