4 ms·

The USA captures most of the value from selling iPhones worldwide, but yet the entire value of an iPhone counts only as a Chinese export. Something is not righ

The USA captures most of the value from selling iPhones worldwide, but yet the entire value of an iPhone counts only as a Chinese export. Something is not right with how we calculate these things.

mysecretaccount 2y ago
iPhone sales don't count as a US export when calculating the trade deficit? Does anyone have information on this? Seems like a major issue indeed.
- thefounder 2y ago
  Of course they don't because they are made in China. Do you think that Ford cars manufactured in Mexico count as U.S export?
  - sam_lowry_ 2y ago
    Not only China but let us assume iPhones are made in China only. China gets a modest share of the profits, because Apple pockets the rest. Reinvesting a fraction in US and stashing most of the profits in banks across the world that use this money as leverage to buy US bonds, among other things.
  - tzs 2y ago
    They are assembled in China. Most of the parts are made elsewhere and shipped to China. Should the entire price of the phone count as a Chinese export?
- jfim 2y ago
  I was wondering the same thing and found this paper: https://www.sciencedirect.com/science/article/abs/pii/S1043951X20300262 https://www.sciencedirect.com/science/article/abs/pii/S10439...
- sandworm101 2y ago
  The physical phone is a "good" that is exported from china. But the majority of the value for an iPhone is in the "services" rendered to that phone, which may be sold/exported from the US but can likely be shifted to other countries in order to avoided taxation/tariffs.
thaumasiotes 2y ago
Quoting from wikipedia: > Prior to 20th-century monetarist theory, the 19th-century economist and philosopher Frédéric Bastiat expressed the idea that trade deficits actually were a manifestation of profit, rather than a loss. He proposed as an example to suppose that he, a Frenchman, exported French wine and imported British coal, turning a profit. > He supposed he was in France and sent a cask of wine which was worth 50 francs to England. The customhouse would record an export of 50 francs. > If in England, the wine sold for 70 francs (or the pound equivalent), which he then used to buy coal, which he imported into France (the customhouse would record an import of 70 francs), and was found to be worth 90 francs in France, he would have made a profit of 40 francs. > But the customhouse would say that the value of imports exceeded that of exports and was trade deficit of 20 against the ledger of France. This is not true for the current account[, which] would be in surplus. ( https://en.wikipedia.org/wiki/Balance_of_trade#Monetarist_theory https://en.wikipedia.org/wiki/Balance_of_trade#Monetarist_th... ) A major fundamental flaw in the concept is the assumption that goods have a fixed value. In reality, their value changes according to where they are, which is the only reason it's possible to make a profit by moving them around. Note that in the same example, if the French wine is bought by a wizard instead of a merchant, and he transmutes the wine into 50-francs-of-wine's worth of coal for export to England (the ways of wizards are mysterious), the customs house will record the value of the coal as 90 francs. It's only worth 50 francs when it's going the other way. And if he does the same thing, transmuting the wine into coal within France, and then sells it in France, the econometric body will be happy that French GDP has increased by 90 francs, making the people of France richer.
- graemep 2y ago
  That sounds like a forerunner to Ricardian comparative advantage which is a major (really the major) reason for thinking international trade makes everyone better off. https://en.wikipedia.org/wiki/Comparative_advantage https://en.wikipedia.org/wiki/Comparative_advantage
  - thaumasiotes 2y ago
    Forerunner? Bastiat would have been 15 when Ricardo published. But note also that the example doesn't make any use of comparative advantage. It's sufficient that the value of the coal is different in different places. This is about how water is more valuable when you're dying of thirst, not about how water is easy to produce if you live on an island in a freshwater lake.
soco 2y ago
Unless I got it completely wrong, the beauty of this ambiguity is that one can make two radically different arguments based on it, depending on who we're trying to impress. Do you want to praise the USA? Here. Do you want to tax China? Also here.
refurb 2y ago
That’s not true. Apple has internal transfer pricing which is dictated by accounting regulations and tax law. Companies try and set transfer prices to minimize local taxes, but need to follow regulations. A phone made in China is “purchased” by say Apple Canada for some fraction the price it sells for - regulation usually require the Value to reflect the cost of inputs. So Apple Canada might purchase a phone from Apple China for $600 CAD then turn around and sell it for $1200 CAD in Canada. It’s the $600 that counts as a Chinese export to Canada.
- randyrand 2y ago
  > yet the entire value of an iPhone counts only as a Chinese export. > That’s not true. You're right. It's not always the "entire" value paid by the consumer.
  - thehappypm 2y ago
    This is actually something that I think a lot about with tariffs. The price that you pay at the corner store for an item, even an imported item, is nowhere near the price that an importer pays at the border.
- maxglute 2y ago
  Most of that $600 is BOM inputs where most of high end components worth $$$$$ is ultimately captured by US / western suppliers (i.e. chips, sensors, screens for iphones). The actual value of export from PRC in terms of material and labour is $, but still counted as $$$$$+$. Though iphone/high tech unique since US plays hand - sanction $$$$$ PRC components so Apple can't integrate them and raise PRC share of Apple BOM, which IIRC grew to ~20% and on way 40%+ (prc memory + screen) and now <20%. This is something PRC stats has started adjusting for.
  - refurb 2y ago
    No, that’s not how the math works. Apple Pay’s for the valued added, not the total value. So if Foxconn is assembling a phone from components, they are paid for just that. The export is labor, not a fully valued finished phone.

The USA captures most of the value from selling iPhones worldwide, but yet the entire value of an iPhone counts only as a Chinese export. Something is not right with how we calculate these things.

mysecretaccount 2y ago

iPhone sales don't count as a US export when calculating the trade deficit? Does anyone have information on this? Seems like a major issue indeed.

thefounder 2y ago
Of course they don't because they are made in China. Do you think that Ford cars manufactured in Mexico count as U.S export?
- sam_lowry_ 2y ago
  Not only China but let us assume iPhones are made in China only. China gets a modest share of the profits, because Apple pockets the rest. Reinvesting a fraction in US and stashing most of the profits in banks across the world that use this money as leverage to buy US bonds, among other things.
- tzs 2y ago
  They are assembled in China. Most of the parts are made elsewhere and shipped to China. Should the entire price of the phone count as a Chinese export?
jfim 2y ago
I was wondering the same thing and found this paper: https://www.sciencedirect.com/science/article/abs/pii/S1043951X20300262 https://www.sciencedirect.com/science/article/abs/pii/S10439...
sandworm101 2y ago
The physical phone is a "good" that is exported from china. But the majority of the value for an iPhone is in the "services" rendered to that phone, which may be sold/exported from the US but can likely be shifted to other countries in order to avoided taxation/tariffs.

thaumasiotes 2y ago

Quoting from wikipedia: > Prior to 20th-century monetarist theory, the 19th-century economist and philosopher Frédéric Bastiat expressed the idea that trade deficits actually were a manifestation of profit, rather than a loss. He proposed as an example to suppose that he, a Frenchman, exported French wine and imported British coal, turning a profit. > He supposed he was in France and sent a cask of wine which was worth 50 francs to England. The customhouse would record an export of 50 francs. > If in England, the wine sold for 70 francs (or the pound equivalent), which he then used to buy coal, which he imported into France (the customhouse would record an import of 70 francs), and was found to be worth 90 francs in France, he would have made a profit of 40 francs. > But the customhouse would say that the value of imports exceeded that of exports and was trade deficit of 20 against the ledger of France. This is not true for the current account[, which] would be in surplus. ( https://en.wikipedia.org/wiki/Balance_of_trade#Monetarist_theory https://en.wikipedia.org/wiki/Balance_of_trade#Monetarist_th... ) A major fundamental flaw in the concept is the assumption that goods have a fixed value. In reality, their value changes according to where they are, which is the only reason it's possible to make a profit by moving them around. Note that in the same example, if the French wine is bought by a wizard instead of a merchant, and he transmutes the wine into 50-francs-of-wine's worth of coal for export to England (the ways of wizards are mysterious), the customs house will record the value of the coal as 90 francs. It's only worth 50 francs when it's going the other way. And if he does the same thing, transmuting the wine into coal within France, and then sells it in France, the econometric body will be happy that French GDP has increased by 90 francs, making the people of France richer.

graemep 2y ago
That sounds like a forerunner to Ricardian comparative advantage which is a major (really the major) reason for thinking international trade makes everyone better off. https://en.wikipedia.org/wiki/Comparative_advantage https://en.wikipedia.org/wiki/Comparative_advantage
- thaumasiotes 2y ago
  Forerunner? Bastiat would have been 15 when Ricardo published. But note also that the example doesn't make any use of comparative advantage. It's sufficient that the value of the coal is different in different places. This is about how water is more valuable when you're dying of thirst, not about how water is easy to produce if you live on an island in a freshwater lake.

soco 2y ago

Unless I got it completely wrong, the beauty of this ambiguity is that one can make two radically different arguments based on it, depending on who we're trying to impress. Do you want to praise the USA? Here. Do you want to tax China? Also here.

refurb 2y ago

That’s not true. Apple has internal transfer pricing which is dictated by accounting regulations and tax law. Companies try and set transfer prices to minimize local taxes, but need to follow regulations. A phone made in China is “purchased” by say Apple Canada for some fraction the price it sells for - regulation usually require the Value to reflect the cost of inputs. So Apple Canada might purchase a phone from Apple China for $600 CAD then turn around and sell it for $1200 CAD in Canada. It’s the $600 that counts as a Chinese export to Canada.

randyrand 2y ago
> yet the entire value of an iPhone counts only as a Chinese export. > That’s not true. You're right. It's not always the "entire" value paid by the consumer.
- thehappypm 2y ago
  This is actually something that I think a lot about with tariffs. The price that you pay at the corner store for an item, even an imported item, is nowhere near the price that an importer pays at the border.
maxglute 2y ago
Most of that $600 is BOM inputs where most of high end components worth $$$$$ is ultimately captured by US / western suppliers (i.e. chips, sensors, screens for iphones). The actual value of export from PRC in terms of material and labour is $, but still counted as $$$$$+$. Though iphone/high tech unique since US plays hand - sanction $$$$$ PRC components so Apple can't integrate them and raise PRC share of Apple BOM, which IIRC grew to ~20% and on way 40%+ (prc memory + screen) and now <20%. This is something PRC stats has started adjusting for.
- refurb 2y ago
  No, that’s not how the math works. Apple Pay’s for the valued added, not the total value. So if Foxconn is assembling a phone from components, they are paid for just that. The export is labor, not a fully valued finished phone.