CHINAMacroReporter

Siri: 'Can The iPhone Prove President Trump's Wrong About U.S.-China Trade?'

[Malcolm Riddell's conversation with Yukon Huang] 'America's trade problems are not the consequence of China's policies.' 'How much of that $650 iPhone - which adds to China's trade surplus with the U.S. - actually originates and stays in China? — Only $25.'
by

|

CHINADebate

July 19, 2017
Siri: 'Can The iPhone Prove President Trump's Wrong About U.S.-China Trade?'
  • For decades, about 50% of U.S. imports of manufactured goods have come from Asia.
  • During this time China has risen from supplying 10% of those Asian goods to supplying 65%.
  • The reason: after joining WTO, China became Asia's assembly plant.
  • Companies ship components manufactured in other Asian countries to China for assembly and export as finished products.
  • And, the full price of those products - components as well as profits - go on China's trade balance, even though China's only economic benefit is the assembly.
  • Hence, China's actual trade surplus is smaller than stated, and, in fact, is a stand-in for Asia's overall trade surplus with the U.S.

Following what now appears to be the vain hope that China would solve the North Korean nuclear problem for him, President Trump seems to be tweeting up to a trade confrontation, perhaps even a trade war, with China.

But, just as he was wrong about China's being a currency manipulator, the President may also be wrong - albeit for more subtle reasons - about how much China itself actually contributes to the U.S. trade deficit.

Yukon Huang, senior fellow at the Carnegie Asia Program and former World Bank head in China, in laying out these subtle reasons, concludes that China's actual trade surplus with the U.S. is smaller than stated in trade statistics. Here's why...

For decades, U.S. imports of manufactured goods from Asia has remained pretty steady at between 45 and 50%.

What has changed is the share of those goods imported from China since it joined the WTO...

There are two possible reasons for this. One is that China simply beat out the other Asian nations.

The other - and real explanation - is that, after joining the WTO, China became the assembly plant of Asia, taking parts and components manufactured in other Asian countries, assembling them into finished products, and then exporting those products to the U.S.... 

‘China accounts for 65% of the exports from Asia to the United States.
'That 65% of exports from Asia to the United States does not represent the true value of these goods being produced in China, since most of these parts and components are actually being produced in Korea, Taiwan, Japan, Singapore, Malaysia, and the Philippines.
'China's only value-added is the labor and the assembly.'

Consider the case of the iPhone. Yukon breaks that $650 price tag down:

  • $325: the value of parts and components, mainly produced in South Korea and Japan.
  • $300: profit to Apple.$25: labor – the only added value to China's economy.
  • $25 to China! Yet, on the trade books, here's what happens...
‘You take a $650 iPhone, assembled, exported from China, and it comes to the United States. It shows up in the balance of payments, in the trade balance, as a $650 item deficit for the U.S. and a $650 surplus for China.
'But, how much of that $650 actually originates and stays in China? Only $25.' 

And, adding insult of a sort to injury...

'That money actually never really shows up in China, because the receipts are basically secured in the United States, but it never stays in the United States. It's basically transferred overseas, but in the trade books it shows up as a product from China, which costs $650.'

So, what do we have... 

  • The U.S. is importing as many Asia manufactured goods as ever - so, there has been no surge in Asian imports.
  • But, what's changed is that Asian manufacturers have been funneling their products to China - Asia's assembly plant  - for assembly and export.
  • So, on the books, it looks as if U.S. imports from China have exploded (please have a look again at the chart, above).
  • In reality, nothing has changed, except for China unfairly taking the blame for what is, in fact, Asia's usual trade surplus with the U.S.

More

CHINAMacroReporter

April 17, 2022
Is China's Tech 'Crackdown' Really Over?
Today, I’m sharing with you a bit of Ms. Schaefer’s analysis of the tech ‘crackdown’ (but not of the AI and algorithm law). She explains why...
keep reading
April 17, 2022
China: 'Sleep Walking into Sanctions?'
A looming risk is Russia-like sanctions on China. The sanctions on Russia are causing plenty of disruptions. But those disruptions would be nothing compared to the catastrophe of Russia-like sanctions on China. The good news is that if China does violate the sanctions, the violations would likely be narrow and specific - even unintentional. So secondary sanctions - if they come at all - likely won't hit China’s economy and financial system deeply – or (fingers crossed) U.S.-China relations.
keep reading
April 5, 2022
Russian Sanctions' Impact on China
In the meantime, some contend, China has a payment system, the Cross-Border Interbank Payment System or CIPS, that could make it independent of SWIFT.
keep reading
March 11, 2021
China, Ai, & the Coming U.S. Industrial Policy
‘The government will have to orchestrate policies to promote innovation; protect industries and sectors critical to national security; recruit and train talent; incentivize domestic research, development, and production across a range of technologies deemed essential for national security and economic prosperity; and marshal coalitions of allies and partners to support democratic norms.'
keep reading
March 11, 2021
'Why Biden Should Ditch Trump’s China Tariffs'
‘President Joe Biden has to decide whether to rescind his predecessor’s China tariffs.’
keep reading
March 11, 2021
Then There are Semiconductors
‘While American companies pioneered semiconductors and still dominate chip design, many have outsourced the actual fabrication of chips, mostly to Asia.’
keep reading
March 11, 2021
'Hard lesson for HK opposition: Extreme political confrontation is not in the designs of China'
'The radical forces in Hong Kong thought they were strong!’
keep reading
March 11, 2021
'China Turns to Elon Musk as Technology Dreams Sour'
‘China is having its techlash moment. The country’s internet giants, once celebrated as engines of economic vitality, are now scorned for exploiting user data, abusing workers and squelching innovation. Jack Ma, co-founder of the e-commerce titan Alibaba, is a fallen idol, with his companies under government scrutiny for the ways they have secured their grip over the world’s second-largest economy.’
keep reading
March 11, 2021
For Industrial Policy: National Security Advisor, Jake Sullivan
‘While American companies pioneered semiconductors and still dominate chip design, many have outsourced the actual fabrication of chips, mostly to Asia.’
keep reading
March 10, 2021
'Beijing replicates its South China Sea tactics in the Himalayas'
‘Emboldened by its cost-free expansion in the South China Sea, Chinese President Xi Jinping’s regime has stepped up efforts to replicate that model in the Himalayas.'
keep reading
March 10, 2021
'China Crackdown on Hong Kong'
‘The scale of the protests really shook Beijing. All the previous protest movements had lasted a few months, at most. This time, there was huge support, and it wasn’t dying down on its own.’
keep reading
March 9, 2021
'Neither China nor the US fits neatly into any one box’ Yuen Yuen Ang
‘Binary narratives lie behind the common misconception that China’s economic success has vindicated autocracy. (The simplistic logic is that if China is not a democracy, it must be an autocracy, and when it prospers, that prosperity must be because of its autocracy). For liberal democracies, this raises the fear that the “China model” poses an ideological challenge to democracy.’
keep reading
March 7, 2021
Part 2 | 'How Biden Can Learn From History in Real Time' Copy
‘ “International relations scholars,” the political scientist Daniel Drezner has written, “are certain about two facts:'
keep reading
March 7, 2021
How the WTO Changed China
'WTO membership, the new consensus goes, has allowed China access to the American and other global economies without forcing it to truly change its behavior, with disastrous consequences for workers and wages around the world.’
keep reading
March 7, 2021
With growth on track, China starts to unwind stimulus
‘China was the first country to open its lending and spending taps in the face of the coronavirus downturn. Now, it is the first to start to close them, giving others a partial preview at the National People’s Congressof what the end of stimulus will look like. The most notable aspect is its gradualism.’
keep reading
March 6, 2021
'Taper test - With growth on track, China starts to unwind stimulus'
‘China was the first country to open its lending and spending taps in the face of the coronavirus downturn. Now, it is the first to start to close them, giving others a partial preview at the National People’s Congressof what the end of stimulus will look like. The most notable aspect is its gradualism.’
keep reading
March 5, 2021
Nursing China’s Debt Hangover
‘China official target of 6% annual economic growth, announced Friday, is so modest it’s clear something else is going on. A plausible theory is that this is part of a strategy to rein in debt.’
keep reading
March 4, 2021
China & the U.S.: Getting Each Other Wrong
China and the U.S. seem to be in the process of reassessing their views of each other’s strengths and weaknesses. Xi Jinping appears to be seeking some balance in his assessment of the U.S. And analysts in the U.S. have reversed a trend of opinion that ‘China is inexorably rising and on the verge of overtaking a faltering United States.' They argue instead ‘the United States has good reason to be confident about its ability to compete with China.’
keep reading
March 4, 2021
'NATO's Shifting Focus to China'
‘Consider, for example, a war escalating over the defense of Taiwan. “We should not forget that the main member state in NATO, the United States, is not only a transatlantic nation, but also a Pacific nation. And the question is, if at a certain stage, the U.S. were to be threatened by China, would that invoke Article 5 in the treaty?"'
keep reading
March 3, 2021
Missing: Has anyone seen Europe’s China plan?
‘Caught between Washington and Beijing, European capitals find themselves in lack of a strategic China policy.’
keep reading
February 28, 2021
Why Beijing was right to rein in Jack Ma's rogue Ant Group IPO
‘In July 2020, just before their IPO application, Ant Financial not only abandoned the word "financial" and renamed themselves Ant Group, they attempted to list not on the Shanghai or Shenzhen exchanges, where financial institutions list, but rather on the Shanghai STAR Market, which was created as an exchange for high-tech innovators.’
keep reading
February 27, 2021
The rivalry between America and China will hinge on South-East Asia
‘In the rivalry between China and America, there will be a main zone of contention: South-East Asia. Of the two competitors, China looks the more likely prize-winner.'
keep reading
February 26, 2021
'Inside Xinjiang’s Prison State'
‘After years of first denying the facilities’ existence, then claiming that they had closed, Chinese officials now say the camps are “vocational education and training centers,” necessary to rooting out “extreme thoughts” and no different from correctional facilities in the United States or deradicalization centers in France.’
keep reading
February 24, 2021
Japan Is the New Leader of Asia’s Liberal Order
‘In an era of Chinese bellicosity, North Korean provocations, and a raging pandemic, Japan’s inconspicuous ascent to regional leadership has gone mostly unnoticed.’
keep reading
February 23, 2021
‘Patriots’ Only: Beijing Plans Overhaul of Hong Kong’s Elections
‘China plans to impose restrictions on Hong Kong’s electoral system to root out candidates the Communist Party deems disloyal, a move that could block democracy advocates in the city from running for any elected office.’
keep reading
February 23, 2021
HSBC offers lesson in corporate realpolitik
‘HSBC’s Asia pivot is a lesson in corporate realpolitik. It is just as much a recognition of the new political reality facing every western company that is dependent on doing business with China. Businesses will have to choose between western markets and access to China, and between liberal and authoritarian value systems.’
keep reading
February 23, 2021
Germany Is a Flashpoint in the U.S.-China Cold War
'As goes Germany, so goes Europe — and that’s a real challenge for the U.S. Berlin leads a European bloc that could cast a geopolitical swing vote in the U.S.-China rivalry.’
keep reading
February 22, 2021
Remaking “Made in China”: Beijing’s Industrial Internet Ambitions
‘The Chinese government is placing large bureaucratic and financial bets on upgrading and digitizing its already dominant manufacturing base. Such efforts have coalesced around one key term: the “industrial internet” (工业互联网). The successful application of it across Chinese industry would prolong and elevate the “Made in China” era.’
keep reading
February 22, 2021
How American Free Trade Can Outdo China
‘When it comes to trade, a critical dimension of the U.S. and China competition, America is ceding the field. At the same time, China has expanded its trade footprint. When it comes to trade and investment agreements, China isn’t isolated. The U.S. increasingly is. Now we have to make up for lost ground. America can out-compete China, but first it needs to get back in the game.’
keep reading
February 21, 2021
China’s ‘two sessions’: why this year’s event is so important for Xi Jinping’s vision for the future
‘The ‘Two Sessions,’ the annual meeting of the National People’s Congress, the country’s legislature, and the top political advisory body, the Chinese People’s Political Consultative Conference, begins on March 5 and runs for about two weeks.’
keep reading
February 20, 2021
‘The Future of China’s Past: Rising China’s Next Act'
‘By the Party’s own acknowledgment, Deng’s initial arrangement has run its course. It is therefore time to develop a new understanding that will do for the Party in the next 30 years what Deng’s program did in the previous era.'
keep reading
February 20, 2021
‘UNDERSTANDING DECOUPLING: Macro Trends and Industry Impacts’
‘Comprehensive decoupling is no longer viewed as impossible: if the current trajectory of U.S. decoupling policies continues, a complete rupture would in fact be the most likely outcome. This prospect remains entirely plausible under the Biden administration.’
keep reading
February 20, 2021
‘Europe can’t stay neutral in US-China standoff’
‘China aims to create a world that is not safe for Europe — strategically, economically or ideologically. Xi is actively striving to undermine the stature of democracies in the global order. The more power China amasses, the less tolerant it will become with any government that won’t toe its line. China also represents a long-term economic threat to Europe — not merely because it is an advancing competitor in a global market economy, but because Beijing’s policies are designed to use and abuse that open world economy to eventually dominate it.
keep reading
February 20, 2021
‘Beat China: Targeted Decoupling and the Economic Long War'
‘The economy is the primary theater of our conflict with China. It is now clear that the U.S. and Chinese economies are too entangled, particularly in critical sectors such as medicine, defense, and technology.'
keep reading
February 19, 2021
‘No, China is not the EU’s top trading partner'
‘This week the media seized on a report by Eurostat, the European Union’s statistical agency, to declare that China surpassed the United States in 2020 to become the EU’s main trade partner. This is simply not true.’
keep reading
February 18, 2021
‘China faces fateful choices, especially involving Taiwan’
'Should Mr Xi order the People’s Liberation Army to take Taiwan, his decision will be shaped by one judgment above all: whether America can stop him. If China ever believes it can complete the task at a bearable cost, it will act.’ ‘
keep reading
February 18, 2021
'An Unsentimental China Policy'
'Jake Sullivan, wrote in Foreign Affairs in 2019, “The era of engagement with China has come to an unceremonious close.”Yet it is worth remembering what engaging China was all about.’ For most of the past half century, efforts to improve ties with the country were not about transforming it. Judged by its own standards, U.S. engagement with China succeeded. It was only after the Cold War that a desire to change China became a prominent objective of U.S. policy.’
keep reading

Heading

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Suspendisse varius enim in eros elementum tristique. Duis cursus, mi quis viverra ornare, eros dolor interdum nulla, ut commodo diam libero vitae erat. Aenean faucibus nibh et justo cursus id rutrum lorem imperdiet. Nunc ut sem vitae risus tristique posuere.