In this paper, we use the iPhone as a case to show that even high-tech products invented by American companies will not increase th e US exports, but to the contrary exacerbate the US trade deficits. The iPhone contri buted US$1.9 billion about 0.8% of the US trade deficit with PRC in 2009. Unprecedente d globalization, well organized global production networks, repaid development of c ross-country production fragmentation, and low transportation costs all con tribute to rational firms such as Apple making business decisions that contributed directly to the US trade deficit. Global production networks and highly specialized producti on processes apparently reverse conventional trade patterns so that developing coun tries, such as PRC, export high-tech goods—like the iPhone while industrialized countrie s, such as the US, import high-tech goods they themselves invented. In addition, conven tional 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-a dded approach, the iphone trade would generate US$48 million trade surplus for the
Professor of Economics, The National Graduate Inst itute for Policy Studies, 7-22-1 Roppongi, Minato-k u, Tokyo, Japan; email@example.com
Research Associate, Asian Development Bank Institu te, Tokyo, Japan
The authors are grateful to invaluable comments fro m Masahiro Kawai, Takashi Kihara, Mario Lamberte,
John West, Doo Yong Yang and other participants at the ADBI seminar.
GRIPS Policy Research Center
At the center of global imbalances is the bilateral trade imbalance between the
People’s Republic of China (PRC) and the United Sta tes (US). Most attention to date has been focused on macro factors, such as low savi ngs in the US, insufficient domestic consumption in China, and PRC’s exchange rate regim
e. A sharp appreciation on
Chinese Yuan (CNY) has been argued as an effective means of mitigating the Sino-US bilateral trade imbalance. Little attention, howeve r, has been given to the structural factors of economies and global production networks that have transformed conventional trade patterns and the way we look at trade statist ics, particularly in calculating the value-added component of traded goods and different iating between processed and ordinary exports.
In this paper, we attempt to explore the effects of some of these factors and attempt to show that production networks, unprecede nted globalization and the profit maximization behavior of multination enterprises pl ay a crucial role in widening Sino-US trade imbalances. We use the iPhone, one of the key technological innovations in recent years created in the US and owned by an American mu ltinational corporation, as an example in this exploration.
2. How iPhones Are Produced iPhones are designed and marketed by Apple, one of the most innovative
American companies. Aside from its software and the product design, the production of iPhones primarily takes place outside of the US. Ma nufacturing iPhones involves 9 companies, which are located in PRC, the Republic o f Korea (hereafter Korea), Japan,
Taipei,China, Germany and the US. The major produce rs and suppliers of iPhone parts and components include Toshiba, Samsung, Infineon,
Broadcom, Numunyx, Murata,
Dialog Semiconductor, Cirrius Logic, etc. All iPhon e components produced by these companies are shipped to Foxconn, a Taiwanese compa ny located in Shenzhen, PRC, for assembly into final products and then exported to the US and the rest of the world.
Table 1 lists major suppliers and costs of iPhone c omponents and parts.
GRIPS Policy Research Center
By any definition, the iPhone belongs to the high-t ech products category, where the US has an indisputable comparative