Are iPhones “made in China”? Measuring value added in trade flows

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If you found the Wall Street Journal‘s Wednesday story on gross value vs value added in trade statistics intriguing…

Trade statistics in both countries consider the iPhone a Chinese export to the U.S., even though it is entirely designed and owned by a U.S. company, and is made largely of parts produced in several Asian and European countries. China’s contribution is the last step—assembling and shipping the phones.
So the entire $178.96 estimated wholesale cost of the shipped phone is credited to China, even though the value of the work performed by the Chinese workers at Hon Hai Precision Industry Co. accounts for just 3.6%, or $6.50, of the total, the researchers calculated in a report published this month…

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.

To correct for that bias is difficult because it requires detailed knowledge of how products are put together.

… then you might enjoy Robert Johnson and Guillermo Noguera’s “Accounting for Intermediates: Production Sharing and Trade in Value Added“:

These adjustments imply that bilateral trade imbalances often differ in value added and gross terms. For example, the U.S.-China imbalance is approximately 30-40% smaller when measured on a value added basis, while the U.S.-Japan imbalance is approximately 33% higher. These adjustments point to the importance of triangular production chains within Asia.

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3 Responses to “Are iPhones “made in China”? Measuring value added in trade flows”

  1. Discussing the US trade deficit « Trade Diversion Says:

    [...] surplus with countries importing finished products. Value-added measures of China’s surplus are substantially smaller. For these reasons, and many more, the discussion should focus on multilateral [...]

  2. Made in a series of places « Trade Diversion Says:

    [...] Are iPhones “made in China”? Measuring value added in trade flows [...]

  3. Textiles: Made in a series of places « Trade Diversion Says:

    [...] are a hot example of vertical specialization in the world economy. Scott Lincicome passes along a graphic that describes just how many different [...]

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