Tuesday, April 6, 2010

"Assembled in China"

The iPad Lesson for China Trade:

The imported cost of the basic iPads, maybe US$250, will show up as another part of the U.S. "trade gap" with China that needs to be "rebalanced." In reality, as little as 5% of the import price is value added at assembly in China. The real content of an iPad, reports The Wall Street Journal, comes from South Korea's Samsung, Japan's Toshiba, Broadcom in the United States and (for batteries) Amperex Technology, a Hong Kong company owned by TDK in Japan. The touchscreen, processors, wireless gear and a score of other elements are created and manufactured around the world.


A study by iSuppli Corp. estimated the total parts and manufacturing cost of the mid-range iPad with 32GB and 3G capability at $287, but all of that is parts cost. The final "assembled in China" portion amounted to $11.20.


With so little of an iPad actually Chinese, iPad imports into the United States become important misleading indicators of the alleged underlying trade imbalance. The import data on a mid-range iPad will raise the U.S. trade gap with China by $287--even though China's role isn't worth more than $12.


The biggest beneficiary of the system is Apple, which analysts estimate could retain a gross profit of more than $200 per iPad. So here's the issue: The United States is launching a major trade and currency offensive against China which, in the iPad case, amounts to attempting to punish China for trade transactions that are a huge benefit to U.S. companies, investors and consumers.

In raw theory, if China were to revalue it's [sic] currency and raise the yuan by 20%, then the dollar value of an imported iPad would rise 20% from $287 to $344, thereby raising the price of an iPad in [sic] further increasing the trade deficit. But theory is unlikely to apply here, since the deep international Apple supply chain suggests that actual U.S. price of an iPad may not change at all. It would certainly not make sence [sic] for Apple to raise the import price of iPads by $57 to account for a currency shift when the actual yuan value added to an iPad is less than $12.

The iPad demonstrates that trade data are grossly inadequate as indicators of global trade realities. Products, resources, components, design and innovation are now global in nature while trade data are antiquated remnants of national data collections systems. Those systems essentially date from a century ago, when products were actually made in one country and shipped to another. Attempts to manipulate and rebalance global trade flows among countries through currency and other policies are deeply flawed and doomed to fail.