WSJ: iPhone renders Trump trade deficit complaints ‘laughable’

From Fred Hochberg’s “The iPhone Isn’t Made in China—It’s Made Everywhere” ($) in Friday’s Wall Street Journal:

At the Jan. 15 White House signing ceremony for an initial trade deal with China, President Trump’s top trade negotiator, Robert Lighthizer, noted that his boss “has, for years, complained about our enormous trade deficit with China.” Indeed, Mr. Trump and others have long considered that gap a reflection of American economic weakness. The premise seems to be that a $420 billion trade deficit with China is akin to Washington just forking over $420 billion to Beijing each year…

One object in many of our daily lives, the iPhone, renders trade deficits especially laughable as a talking point. The iPhone was invented and designed in America, is powered by Central African minerals and is brought to life by European and Asian technologies, but both the World Trade Organization and the U.S. nevertheless classify it as a 100% Chinese export…

Yet every time a $999 iPhone gets sold to a U.S. customer, that money doesn’t get wired directly to Beijing. The global information provider IHS Markit estimates that for every iPhone X that gets sold, $110 is sent to Samsung, the South Korean conglomerate that makes iPhone displays. (Samsung also produces the Galaxy series of phones, making them Apple’s chief rival in the smartphone market.) Another $44.45 finds its way to the iPhone’s memory chip suppliers: Toshiba Corp. of Japan and SK Hynix Inc. of South Korea. A little money goes to Singapore; a little goes to Brazil; a little goes to Italy; and a little goes to Corning, N.Y. The vast majority of those dollars go to Apple Park in Cupertino, Calif., while China earns only an estimated $8.46 for the labor and parts that it supplies.

My take: $8.46 is 0.8% of $999, which ought to—but won’t—knock some of the wind out of the administration’s trade rhetoric.

9 Comments

  1. David Emery said:
    Bfffftttt! We’re supposed to trust WSJ’s selection of IHS supply chain data?

    They might be right. They might be completely wrong about the costs distributed through the supply chain. It’s also fair to consider raw materials as distinct from commodity products (e.g. memory chips) from assembly. These are not the same economically, particularly when considering a global supply chain that can do competition across the world.

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    February 3, 2020
  2. Fred Stein said:
    Great article, an excellent counter to the populists on the left and the right.
    1) Apple pays income tax at 4% of top line revenue (26% of profit). $40 of the article’s example, a $1000 iPhone goes to our treasury. A lot more goes to employees and stock holders who also pay taxes, and to local governments (in Apple’s zip code, sales tax is 9%, add another $90), and to local real estate taxes and to US suppliers. Apple also matches employee donations 2 to 1.
    2) India provides a good example of a country with policies to restrict import of high tech products made elsewhere. What a shame, as they have 100’s of millions in desperate poverty. Yet, we know there is no shortage of brilliant hard working people from India. Many are here, making massive contributions to our society. (Many are giving back, back home, as well.) The good news for India and Apple is that their policies are finally changing.

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    February 3, 2020
    • Robert Stack said:
      The WSJ putting out an inaccurate piece on AAPL? I’m shocked – SHOCKED! Round up the usual suspects!

      And that’s before we even get to Tripp Mickle…

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      February 3, 2020
  3. Gary Morton said:
    Hard to believe the WSJ would put out such an inaccurate piece. Figuring out the international trade calculations can get messy, but it is not at all what the WSJ article reflects. The final assembly factory in China has every component shipped into it. If the Display comes from Samsung in South Korea, then a transaction for trade between China and South Korea shows up, same for Japan and China with the Toshiba memory, etc. The iPhone shipment from China to the US, after netting out other cross border trade items, essentially gives China credit for the value added in China, not the US retail price of the phone.

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    February 3, 2020
    • John Konopka said:
      Can you clarify this more? I’ve wondered about this a lot. When an iPhone is imported to the US from China, is a tariff levied on the entire wholesale price? Do they back out all the items that were shipped from other countries to China? Seems like this would involve an awful lot of paperwork. But it makes some sense. If you can import a Samsung display directly for no tariff why should you have to pay a tariff if it gets routed through China?

      Also, strictly speaking, are iPhones built in China proper? I thought they were built in a kind of special economic zone. I have no idea what that does to tariffs.

      https://en.wikipedia.org/wiki/Special_economic_zones_of_China

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      February 3, 2020
      • Gary Morton said:
        There are no tariffs on iPhones imported from China.

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        February 3, 2020
  4. Gregg Thurman said:
    For me what the article most accurately points out, is that we live in a global economy.

    Taxation should be about where the product is sold, not made.

    Dump income tax against manufacturers and tax consumption, the only cross border solution that addresses where value is realized.

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    February 3, 2020
  5. Jerry Doyle said:
    The iPhone is manufactured and assembled in China. One primary issue is the loss of American manufacturing jobs. This is a compelling issue the article fails to address.

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    February 3, 2020
    • David Drinkwater said:
      I think Steve Jobs himself observed: “those jobs are never coming back”. If anything, the will be slowly replaced by automation. And certainly in semiconductor manufacturing (and I would think also in electronics assembly), we prefer to eliminate humans. They are particle generators, and particle = defects. There are numerous advantages to automation where possible. The trade off, of course, is the cost of the manufacturing equipment.

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      February 3, 2020

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