iPhone - hidden complexity of inter-country trade flows

Prior to that, Machinery reported that Foxconn was buying Fanuc vertical machining centres by the thousand – 1,500/month, according to Jean-Pierre Wilmes, CEO of GF AgieCharmilles, at a gathering in Germany in March this year. All a reflection of Apple's products' success – the company recently passed Exxon Mobil to become the world's most valuable company, as measured by its market value of $337 billion. For its third quarter this year, Apple reported that it had sold 20.34 million iPhones – more than double the number in the same period last year, representing 142% unit growth; and it sold 9.25 million iPads, a 183% unit increase on the same quarter last year and almost triple the number that was sold during its debut quarter in 2010. "We're thrilled to deliver our best quarter ever, with revenue up 82% and profits up 125%," Steve Jobs, Apple's CEO, said at the time. So it was only a matter of time before Apple's products' impact on trade came under spotlight. In this particular case, it is with America, but the general point is valid, and that is that the picture painted by trade flows hides the complexity of today's international supply chains. According to an analysis*, the shipment of ready-to-use iPhones from China to the US amounted $2.0 billion in 2009, although parts supplied by US suppliers to China, by Broadcom, Numonyx and Cirrus Logic, were valued at £108 million, meaning that the actual trade deficit is $1.9 billion, or 0.8% of the US trade deficit with China. Wow. One product such as a smartphone is responsible for almost a whole percentage point of the China-US trade deficit! Actually, no. Most of the export value and deficit are attributed to imported parts and components from the third countries and have nothing to do with China. Chinese workers contributed only $6.50 to each iPhone, about 3.6% of the total manufacturing cost, says the analysis. So, of the $2.0 billion, 96.4% is actually linked to other countries - Japan ($670 million – 33.5%), Germany ($326 million – 16.3%), Korea ($259 million – 13%), the US ($108 million – 5.4%) and others ($ 542 million – 27%). The point that the analysis is actually making is that the Sino-US bilateral trade imbalance has been greatly inflated by the trade statistics, which do not clearly reflect the complexity of modern-day supply chains. However, this one analysis is replicated the world over, as countries import, assemble and export all manner of products. How about Skagen watches – Danish? Well… designed by a Danish couple living in the USA; made in China; movement, Japanese. And, on misleading trade flows, the UK's third largest market for machine tools and manufacturing technology, according to the Manufacturing Technologies Association, is Belgium, with £37.1 million, while exports to China are only a little more at £41.9 million. A reflection of the significance of a large Japanese manufacturer based in the UK shipping to Europe via Belgium. Similar flows from Belgium to UK are a reflection of a large US?machine tool builder with warehousing there. *Yuqing Xing, professor of economics and the director of Asian economic program at the National Graduate Institute for Policy Studies, Tokyo – www.voxeu.org/index.php?q=node/6335 First published in Machinery, October 2011