Trade imbalance: statistics in part misleadingly inaccurate – a study of the iPod and iPhone.

The Wall Street Journal (Andrew Batson) reported on Thursday, December 16, 2010 ("Marketplace" page B1) that the US does not receive trade credit for its high technology advancements when trade balances/imbalances with other countries are calculated.

Mr. Batson took the example of Apple Inc.’s iphone. The iphone added $1.9 billion to the U.S. trade deficit in 2009 because the traditional ways of measuring global trade fails to reflect the current realities and complexities of global commerce where the design, manufacturing and assembly of products often involve several countries. The current measurement standards result in distortion, according to Mr. Batson.

Of the I-Phone’s $178.96 estimated wholesale cost of the shipped phone which is shipped from China, the entire cost is of the phone is credited to China, even though the value of the work performed by Chinese workers is a mere $6.50 per phone and is limited almost exclusively to assembly only – with other parts of the phone components manufactured elsewhere e.g. 34% from Japan, 17% Germany, 13% South Korea 6% United States, 27% other countries. Only 3.6% should be attributed to China under a "value added" approach, instead of attributing the shipping country, China, with the entire $178.96 wholesale cost.

The Chinese have been quick to pick up and leverage upon this alleged mis-calculation to Chinese detriment. Mr. Batson reports as follows:

"…research also found that Chinese labor accounted for only a few dollars of the iPod’s value, even though trade statistics credited China with producing its full value. In a speech in September in New York, Chinese Premier Wen Jiabao cited that research to argue that trade tensions between the US and China are overblown."

Wall Street Journal, Thursday, December 16, 2010.

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