Saturday, January 22, 2011

iPhone study raises questions about trade deficit with China

Economists at the Asian Development Bank Institute took an in-depth look at how the iPhone is handled in our trade statistics.  The manufacturing cost of an iPhone is $178.96.  Final assembly of iPhones takes place in China so every iPhone we import drags down the trade deficit by that amount.  However, it turns out that only the final assembly takes place in China whereas other components are made elsewhere.  The Chinese contribution to the iPhone amounts to a mere $6.50.  The point?  Be very careful when you start to make claims about the trade deficit with China based on official trade statistics which use the $178.96 not the $6.50. 

Even if iPhones contribute to the trade deficit, they make up for it in other ways.  The iPhone is sold at a considerable markup in the US and other countries, and don't forget about all the music and app sales, data and voice plans, and the emerging trend of retail purchases by phone.   

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