Baruch: big in Japan

Imagine what Baruch found in his daily Abnormal Returns troll last thrusday, Bento! It seems 2 academic dudes, one Yuqing Xing and another Neal Detert at the Asian Development Bank Institute in Japan, took a look at the iPhone and the US-Chinese trade deficit, and realised that high tech products such as the iPhone, which are merely assembled in China, distorted the picture. Very little of the value of the iPhone comes from, or remains in China, yet the full value of the iPhone is counted as a Chinese export for the purposes of deficit calculation. The official numbers are wrong, therefore, and the “real” deficit is much lower.

All well and good, and jolly interesting too. So much so that it was picked up by the WSJ, Paul Kedrosky, and of course, Tadas at AR.

Baruch certainly found the article interesting, as these were thoughts very similar to those he set down over one year ago in a blogpost here called What’s an export? Seriously. In it, after examining the supply chain of the iPhone* in some detail, he concluded that high tech products which are merely assembled in China distorted the picture. Very little of the value of the iPhone comes from, or remains in China, yet the full value of the iPhone is counted as a Chinese export for the purposes of deficit calculation. He wrote

Presumably to work out the real trade balance in terms of where trade flows, or where the wealth generated by iPhones goes, classifiying it as a {Chinese} export for the purposes of assessing a trade balance is misleading . . . Where there are totally integrated global supply chains, I suspect that the definitions of “import” and “export” begin to lose meaning.

Baruch was confused: why did economists and politicians harp on about the trade deficits like this when it  assessing the true value of the deficit was so obviously problematic? The post ended with a plea:

If there are any professional economists left reading UB, please help.

“Help” in this case, did not mean “purloin my idea and publish it in your own name for the glorification of your career without so much as citing poor old Baruch.”

What do you think Bento? Can I sue?

*happily, Xing and Detert also make a hash of the foodchain of the iPhone. Toshiba does NOT make the touchscreen and display module of the iPhone, though may be implicated in the NAND memory; touch module is left to an obscure-ish Taiwanese company called TPK, the screen could come from a whole passel of suppliers, but probably not Tosh; the apps processor is only “fabbed” by Samsung but is a design owned by Apple, Infineon does not make the “camera module”, though does make the baseband and some other stuff. Etc etc.

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4 thoughts on “Baruch: big in Japan”

  1. It’s simple: follow the money. The moment they stop buying treasuries, is the moment they no longer had a current account surplus.

  2. An approach acknowledging these factors presumably would not just reduce our current account deficit with China but also increase it with other Asian countries in the manufacturing chain. And to compete the circle, do we have any sense of what portion of the value added (engineering, marketing, etc) in this type of technology product, if any, is included in US exports? I would suspect very little of it.

    1. Indeed, none of it is as far as I can see. The whole discussion confuses outsourcing — where MORE value remains with the one doing the outsourcing (why else would they outsource?)– with loss of manufacturing competitiveness. This outsourcing is a key part of the continued prosperity of US high tech companies. It allows them to get the benefits of low cost production, an advantage which would otherwise accrue to potential competitors in Asia. If US automakers ahd been able to outsource to Japan and Korea, don’t you think the industry would be much healthier?

      That’s why this whole debate is arse-bitingly stupid, US politicians attempting to score points by denying their own firms the advantage of staying competitive and creating high value jobs at home, by trying to bring back low value ones.

  3. Have you heard about all the cash stranded in offshore tax havens? I would guess that the reason it is stranded there is that the US corporations did not book it as a US income. There are some very strange side effects from tax planning/evasion/what ever, and distortion of national statistics is one of them.

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