The trade deficit with China has reached a record. On the surface, it seems that the United States has suffered a big loss. However, does data mean everything? This paper attempts to analyze the truth behind the data from the cost and profit composition of iPhone X.
America's foreign trade deficit will not disappear because of the trade war.
Historically, the US foreign trade deficit has existed for a long time. Since 1970s, the overall foreign trade deficit of the United States has gradually increased (see figure 1).
It is worth noting that the mid-1980s coincided with the outbreak of the US-Japan trade war, during which the US trade deficit declined slightly, but it did not completely reverse the "unbalanced" trend of US foreign trade, nor did it fundamentally improve the US trade deficit with Japan (see Figure 2).
Looking at the bilateral trade between China and the United States, during the period of 1985-20 17, the United States had a trade deficit with China every year, and the overall trend was to increase year by year. In 20 17, it reached an all-time high of $375.23 billion (see figure 3). It is for this reason that the United States launched a trade war against China, aiming at improving the bilateral trade imbalance between China and the United States.
However, history has proved that no matter whether the United States fights a trade war or not, the normal state of its foreign trade deficit will not change, not only for Japan, but also for China.
Why is this?
The most direct reason is that the existing trade statistics methods have their own limitations.
At present, the internationally accepted trade statistics rule is the "rule of origin", that is, based on the cross-border physical value of goods, the import and export are defined according to the country of origin and destination of goods. As Yi Gang, governor of the central bank, said at the Boao Forum, because China has been at the end of the Asian industrial chain for a long time, China often imports parts from Japan, South Korea and Taiwan Province Province of China, and exports the finished products to the United States after a series of processing. The formation of this pattern has shifted the imports of the United States from Japan and South Korea to China, which has led to a decline in the trade surplus between Japan and South Korea and an increase in China's trade surplus with the United States.
In this process, China imperceptibly played all roles in the whole East Asian industrial chain, and China's trade surplus with the United States essentially reflected the trade surplus of the whole East Asian industrial chain with the United States. In 20 17, China's trade deficit with Japanese, Korean and Taiwan Province Province of China was as high as192.9 billion US dollars, while in197 it was only 154 billion US dollars (see Figure 4).
Therefore, simply provoking a trade war with China is not enough to offset the US deficit with East Asia. Of course, the root cause of Sino-US trade imbalance is far from simple. If you dig deeper along the line of thought just now, you will find that there is another side hidden behind it.
What is the root of Sino-US trade imbalance?
Here, it is necessary to clarify the concept of "global value chain" first.
With the deepening of economic globalization and the vigorous promotion of the new round of industrial technology revolution with the Internet as the core, more and more multinational giants begin to allocate resources on a global scale. The R&D, design, production, processing, distribution and after-sales service of its products are no longer limited to the same country or region, but gradually evolved into a situation of "one commodity, global production", which is the so-called "global value chain".
These multinational giants no longer make profits by manufacturing products, but use the monopoly of brands and technologies to obtain the maximum added value in the value chain of each product. From the smile curve, the home countries where American multinational giants are located are more at the profit heads at both ends of the curve, while the profit rate of developing countries is at the bottom of the smile curve for a long time (see Figure 5).
For China, due to its comparative advantage in the global value chain division, it will import a lot of resources from Latin America, the Middle East, Australia and other countries and regions, import a lot of intermediate products from the United States, Japan, South Korea and Germany, and then export them to Europe and the United States after assembly and processing in China. The actual added value is only part of China's processing and assembly, but under the current export accounting method, the export products are calculated according to the ex-factory price, which greatly overestimates the trade surplus between China and the United States.
In fact, China's foreign trade structure also illustrates this problem. In China's foreign trade surplus in 20 17, processing trade accounted for 6 1.9%, while general trade only accounted for 38. 1% (see Figure 6). This situation will inevitably lead to the situation that the trade deficit is in the United States and the profit deficit is in China. Therefore, the bilateral trade between China and the United States is far from being as "unfair" as the data shows.
On the US-China Trade Deficit from the Profit Sharing of iPhone X
We might as well take apples in the United States as an example to illustrate.
There was once a very popular bestseller called "An iPhone's Journey Around the World", which told the legendary life of Apple's iPhone:
American design, key components made in Japan, core chip and display screen made in Korea, and other components supplied by manufacturers in Taiwan Province Province. Finally, it was assembled in the Foxconn factory in Shenzhen, and then it was airlifted to the United States. Then people from China queued up at the door of the Apple store to buy it, smuggled it back to China, and then sold it to all parts of the country. Then it was recycled and refurbished by the mobile phone workshop in Shenzhen, and finally it was dismantled and recycled as electronic waste. ...
It should be noted that, according to the current international trade statistics, when the iPhone was assembled in Foxconn factory and airlifted to the United States, then this genuine American mobile phone was considered as imported from China. In other words, Apple's most profitable mobile phone, while creating huge profits for the United States, has zero contribution to American exports!
What will happen to the overall trade deficit of the United States if the income generated by iPhone products overseas is included in the US exports? We can roughly calculate an account based on Apple's latest mobile phone iPhone X.
Table 1 is the material cost list of iPhone X exposed by the media. It can be seen that the total BOM cost of a single iPhone X is $465,438 +02.75, which is about RMB 2,700, only accounting for its selling price in China (64GB, 8388 RMB; 256 GB: 9688 yuan) is about 30%. If you don't consider spending on research and development, marketing, etc. Then every time fruit powder buys a brand-new iPhone X, it contributes nearly 6,000 yuan in profits.
So, how will these profits be distributed?
According to the research report "Capturing the Profit of Apple's Global Supply Network" written by three professors from the University of California and Syracuse University, the profit distribution of an iPhone varies greatly in different countries/regions around the world. Every time Apple sells an iPhone, it enjoys nearly 60% profit. The second place is the supplier of raw materials such as plastics and metals, accounting for 21.9%; As a major supplier of screens and electronic components, South Korea only got a profit of 4.7% for the iPhone 4.7% As for Chinese mainland, it only earned a profit of 1.8% through labor (see Figure 7).
In this way, every time an iPhone X is sold, Apple can make a profit of more than 3,000 RMB. If this figure is roughly regarded as the profit of all iPhone products, then in 20 17, the profit of "importing" iPhones from China in the United States will exceed $22 billion.
Furthermore, according to the statistics of Counterpoint Research, in 20 17 years, the global sales of iPhone products reached as high as 2160,000 units. Excluding China's sales of more than 5 10/00000, the number of iPhone products "exported" from China is as high as1560000, including 70 million from the United States.
According to the revenue structure of Apple's 20 17 annual report, iPhone products alone have expanded China's foreign trade surplus by 9 10 billion dollars and expanded its trade surplus with the United States by 40 billion dollars, from which Apple will gain about 52.7 billion dollars and 23.2 billion dollars in gross profit.
This is just Apple's iPhone product line. In reality, there are many such multinational giants. For example, Nike sneakers are made in Fujian, and Dell and Hewlett-Packard computers are assembled in Chongqing through Foxconn. These are all important factors that lead to the high US trade deficit with China.