The iPhone Isn’t Made in China—It’s Made Everywhere

The global supply chains behind Apple’s smartphone show why trade deficits are so pointless as a measure of economic strength

By Fred P. Hochberg. Excerpts:

"The iPhone was invented and designed in America, is powered by Central African minerals and is brought to life by European and Asian technologies, but both the World Trade Organization and the U.S. nevertheless classify it as a 100% Chinese export.
 
For the purposes of calculating the U.S. trade deficit, it wouldn’t matter if 99 out of every 100 iPhone suppliers were located in downtown St. Louis. The country “where the last substantial transformation” of a product occurs gets credit for it. Because the overwhelming majority of iPhones have their final assembly done in China, the value of their Swiss gyroscopes, Dutch motion chips, Japanese retina displays and American glassware gets assigned to the Chinese economy. The iPhone’s assembly is largely handled by the Taiwanese company Foxconn Technology Group, the world’s largest contract manufacturer of electronics. According to Reuters, that final assembly is estimated to represent just 3-6% of the cost of building each phone, or about $10 to $20 for every iPhone X."

"Because the trade deficit is calculated using factory costs—an estimated $230 per iPhone—rather than retail prices, iPhones would contribute about $16 billion to the U.S. trade deficit with China. Only Apple knows the exact number of iPhones sold in the U.S. each year, so the actual value of these imports could be somewhat lower or higher, but the figure is certainly in the tens of billions, which gets factored straight into our $420 billion trade deficit with China.

"Yet every time a $999 iPhone gets sold to a U.S. customer, that money doesn’t get wired directly to Beijing. The global information provider IHS Markit estimates that for every iPhone X that gets sold, $110 is sent to Samsung, the South Korean conglomerate that makes iPhone displays."

"Another $44.45 finds its way to the iPhone’s memory chip suppliers: Toshiba Corp. of Japan and SK Hynix Inc. of South Korea. A little money goes to Singapore; a little goes to Brazil; a little goes to Italy; and a little goes to Corning, N.Y. The vast majority of those dollars go to Apple Park in Cupertino, Calif., while China earns only an estimated $8.46 for the labor and parts that it supplies.

The iPhone may be calculated as a Chinese import, but most of the money that Americans spend on them doesn’t travel far from home."

"Trade deficits are also unreliable measures of economic health for several other reasons. For one, they can be easily distorted by factors that go beyond a tally of imports and exports. When the U.S. dollar rises or falls in value, for example, our trade balances fluctuate. A high dollar renders American exports more expensive and imports cheaper. So even if the number of products that the U.S. has imported from overseas hasn’t changed, when the dollar becomes more valuable, American shoppers will probably buy more imports and sell fewer exports—making the U.S. trade deficit “worse.”"

"Global trade has made many products cheaper, stronger, more innovative or more accessible by influencing supply and demand. It lowers the price tag on our clothing, allows for more durable car parts and provides us with blueberries in the wintertime."

"By weaving together the technologies and resources of many countries, trade has made extraordinary products possible. American audio chips, Korean batteries, Congolese minerals, Japanese cameras, German accelerometers: The iPhone may well be the most truly global product yet."

"If Americans were left to our own devices, we’d be left without many devices of our own."