The PJ Tatler

Does iPhone Really Add to a Chinese Trade Surplus?

What does today’s iPhone announcement with Verizon have anything to the upcoming visit of Chinese President Hu Jintao on January 19?

When Congress reconvenes next week, expect to hear a spate of anti-Chinese speeches by anti-trade Democrats who want to protect union jobs.  They will first encode the anti-Chinese stance in calls to punish China for its currency manipulation.

What does this have to do with the iPhone?   Last month, in anticipation of Hu’s visit, economists at the Asian Development Bank put out a press release claiming that the iPhone contributes nearly $1 billion to China’s trade surplus with the United States.  In 2009 they argued that the iPhone added nearly $2 billion to Chinese coffers.  Well, as today’s Wall Street Journal reveals, this was done by good old Washington accounting trickery.   For if anyone hasn’t noticed, the iPhone is manufactured by an American company called Apple.  Of the $179 cost for the phone, only $6.50 of it is from China, where the iPhone is assembled, not made.

But the Asian Development folks decided to put the entire $179 as benefiting Chinese  trade.  If only the assembly costs were calculated, the iPhone would have added $34 million in a trade surplus.   Pretty big difference.  Actually, I don’t know anyone who can buy a new iPhone for $179 and if you do, could you send them my way?   As for the benefit of the iPhone to Americans, Apple makes a handsome profit from the beautiful little device, adding jobs, re-investment profits and (BIG) shareholder gains for Americans.  But don’t tell that to the anti-trade folks in D.C.  You will hear more of their rants leading up to the Chinese visit to Washington.