The Christmas fairy tale of the iPhone and the US trade deficit

[Prometheus Bound]

The Christmas fairy tale of the iPhone and the US trade deficit
Tom Holland
Dec 24, 2010

<snip>

Yet if they were to smash their iPhones in anger, the US politicians threatening trade retaliation against Beijing might realise that America's bilateral trade deficit with China is not all it seems.

Although iPhones are made in China, few of the components, and none of the valuable ones, are manufactured there. Teardown analysis of an iPhone 3G reveals that the touch screen is made by Toshiba of Japan, the application processor comes from Korea's Samsung, the camera unit is manufactured in Germany by Infineon, and US company Broadcom provides the Bluetooth gadgetry. China's only significant contribution is the actual assembly, which costs only US$6.50, or just 4 per cent of the total manufacturing cost (see the second chart).

Seen this way, the bilateral trade imbalance between China and the US looks radically different. On a value-added basis, China's iPhone exports to the US were not worth US$2 billion last year, as the headline figure indicates, but a mere US$73.5 million. Given that companies in the US shipped iPhone components worth US$121.5 million to China for assembly, that means far from running an iPhone trade deficit with China of almost US$2 billion last year, the US actually notched up a bilateral surplus of US$48 million.

This not only means that US anger at China is misdirected, it also means that the 20 per cent yuan appreciation that many in Washington are demanding would have little impact on America's overall trade deficit.

In a research study published earlier this month, analysts at the Asian Development Bank Institute in Tokyo calculated that a 20 per cent rise in the yuan's exchange rate against the US dollar would add just US$1.30 to the manufacturing costs of an iPhone 3G which sells in US shops (without a mobile contract) for US$499. Given Apple's 60 per cent profit margin, the ADBI analysts argue that the company would not even bother to pass these cost increases on to customers.

<snip>

Clearly, American politicians' fury at China over the US trade deficit is misplaced. Perhaps instead their anger should be directed at those companies like Apple which chose to manufacture in China rather than in US factories. Even allowing for the difference between US and Chinese labour costs, the ADBI estimates that Apple could manufacture all its iPhones in the US and still make a profit margin of 50 per cent.

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[OHdem10]

1. The Elites and the Investors wat maximum profit. They crack

the whip on the Nultinationals yelling more profit, more profit.

There are so many products mfged in China, many of which
used to be built in this country.

Good point re Apple.

[JCMach1]

2. Disagree, it's the iPhone assembly plus EVERYTHING ELSE

[pschoeb]

3. Toshiba, Infineon and Broadcom all have Fabs in China

Broadcom, the only "US" company listed, does not Manufacture anything in the US.

Broadcom's silicon foundries are Taiwan Semiconductor Manufacturing Corporation in Taiwan, Global Foundries Inc. in Singapore, Semiconductor Manufacturing International Corporation in China, Silterra Malaysia Sdn. Bhd. in Malaysia and United Microelectronics Corporation in Singapore and Taiwan

Broadcom's assembly and testing is conducted by seven key subcontractors: Advanced Semiconductor Engineering in Taiwan and China; Amkor in Korea, Philippines and China; Signetics in Korea; Siliconware Precision in Taiwan; STATSChipac in Singapore, Korea, and China; and United Test and Assembly Center in Singapore, China, and Thailand.