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HomePublicationsBrowse ListingHow the iPhone Widens the United States Trade Deficit with the People's Republic of ChinaHow iPhones are Produced

How iPhones are Produced

iPhones are designed and marketed by Apple, one of the most innovative US companies. Apart from its software and product design, the production of iPhones primarily takes place outside the US. Manufacturing iPhones involves nine companies, which are located in the PRC, the Republic of Korea (hereafter Korea), Japan,,Germany, and the US. The major producers and suppliers of iPhone parts and components include Toshiba, Samsung, Infineon, Broadcom, Numunyx, Murata, Dialog Semiconductor, Cirrius Logic, etc. All iPhone components produced by these companies are shipped to Foxconn, a company from Taipei,China located in Shenzhen, PRC, for assembly into final products and then exported to the US and the rest of the world. Table 1 [ PDF 37KB | 1 page ] lists major suppliers and costs of iPhone components and parts.

By any definition, the iPhone belongs to the high-tech product category, where the US has an indisputable comparative advantage. In effect, the PRC does not domestically produce any products that could compete with iPhones. The US also has an absolute advantage in the smart phone category. Ricardian theory and Hecksher-Olin theory would suggest the US should export iPhones to the PRC, but in fact the PRC exports iPhones to the US. All ready- to-use iPhones have been shipped to the US from the PRC. Foreign direct investment, production fragmentation, and production networks have jointly reversed the trade pattern predicted by conventional trade theories. The manufacturing process of iPhones illustrates how the global production network functions, why a developing country such as PRC can export high-tech goods—at least according to the currently applied methodology for calculating trade statistics—and why the US, the country that invented the iPhone, becomes an importer.

Download this Paper [ PDF 110KB| 12 pages ].

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  1. Dan Lieberman
    (posted 30 June 2011 / 08:39:11 PM)

    Commentators indicate that, although IPhone parts and assembly are mostly from foreign manufacture, the IPhone sales, which is profit plus added value, don't degrade the US trade balance. If all sales were from the domestic office to foreign importers, this would be true, but aren't they also from foreign subsidiaries?
    Shouldn't we also consider that the IPhone sales only help Apple's profits and not the US economy? By purchasing IPhones, US workers, who earn little from Apple's manufacture, steer purchasing power from domestic products to a foreign product, making the Apple corporation rich and US workers with increasingly lesser jobs.
  2. Jianmang Li
    (posted 25 January 2011 / 12:11:02 AM)

    There are two important issues that authors of this research did not take into account.

    1. It is not enough to list only the trade data of two countries. The IPhone is export from US to all countries in the world. One interesting example is that it also export to China. Yes US import the IPhone at cost but it export to China at whole sale price.

    2. Multinational such as Apple, the internal transfer pricing is of great important. For example, the IPhone are shipped from China to US at production costs. This indeed is trade deficit for US. But if Apple invoice IPhone distributors from US, then this is US export (although in real live the product never leave China) to China which is in much higher price. In this why, the US might well be in trade surplus against China, and the IPhone will also helps US trade in surplus against all countries that import IPhone.

    Take all these issues into consideration. The IPhone definitely help US to close the trade deficit against all countries. Depending how many unit are sold and Apple company internal transfer pricing, it well could be the even the trade against China is in surplus. i.e. #Unit sold in China X export price > #Unit shipped from China X cost price. If that is the case, then the conclusion of this work is all wrong. So this work should be redo.
  3. Alfred
    (posted 05 January 2011 / 09:21:25 AM)

    Yes, we must look at international trade in this new way, in order to keep up with globalization --- the international supply chain and the big geographical footprints of large companies (spanning many nations). We can't just look at simple data on sovereign states anymore, otherwise our thinking will be distorted. Frustrated country policymakers are still using old dials, gauges, and measurements geared towards sovereign states, hence failing to capture the true supply chain picture.

    Furthermore, globalization has also given rise to the large corporates as they become more efficient and developed and influential to global economics. It seems large corporates and large industries are now actually driving economies (and hence global trade). Sovereign states are diminishing in stature to just business addresses for the corporates. This excellent paper would also suggest to us that analysis of the global trade should also include the corporate dimension. The sovereign state dimension alone is an outdated way to see the world.
  4. Thoo Lee Ming
    (posted 17 December 2010 / 12:51:41 PM)

    The author presented a very interesting angle to the entire trade deficit issue. Although I am agreeable that profit maximization is critical for the siting of assembly of iPhones to done out in China, I believe there are other critical factors to be considered.

    The author has shown that most of the components are manufactured out in North Asia. Hence apart from labour cost, the author should relook into the cost of supply chain; logistics required to move the components across the world, indirectly impacting the time and cost.

The views expressed in this paper are the views of the authors and do not necessarily reflect the views or policies of the Asian Development Bank Institute (ADBI), the Asian Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms.

Working papers are subject to formal revision and correction before they are finalized and considered published.

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