Recently there are quite a few heated exchanges going on among the current roster of politicians running for president. Trump has been at the forefront of some of the criticism as even his own line of Trump clothing is made in China.
With boatloads of Chinese-made goods coming this way, and empty ships going the other way, some argue, we run a huge trade deficit. The argument then suggests that the “deficit” effectively exports U.S. jobs to China while we are importing goods from there. In my new company we are importers of high tech hardware from Shenzhen. I now believe that argument is complete nonsense.
Before I started my company I probably listened to too much of what our politicians preached. But then I began to look in more depth at the situation. Without using any Chinese-made products we would be lost, with no phones, no computers, no TVs, and so on. America has been running a trade deficit against China for a long time. It is importing from China lots of Apple iPhones, Dell computers, Gap shirts, Hasbro toys, Mattel dolls and Nike shoes. The list can go very long.
Careful eyes may immediately spot that those are all American companies. In fact, in a recent Forbes magazine article, Baizhu Chen, a professor of clinical finance and business economics at USC Marshall School of Business, pointed out the San Francisco Federal Reserve’s study that found 55% of the value of American imported goods from China actually goes to American companies and workers.
In comparison, American companies and workers only capture 36% of the value added of the import from all countries combined. Buying from China gives America a much better deal than buying from other countries in the world.
My manufacturer, Foxconn, is the same company that makes the iPhone so lets look at that as an example. In 2009, iPhones contributed about $2 billion, equivalent to 0.8% of the Sino-U.S. bilateral trade deficit. One iPhone 3GS is sold for about $600. These phones were exclusively manufactured by Foxconn.
To produce them, Foxconn had to import $10.75 worth of parts from American companies. The rest of its $172.46 components came from Korea, Japan, Germany, and elsewhere. Out of a $600 iPhone, how much does China get? A puny $6.50, or 1% of the value. Apple makes vastly more. Combining with other American companies making parts, America receives close to 70% of the value. The portion of America’s trade deficit against China truly contributed by iPhones based on value-added calculation is only a very small portion of $2 billion. Most of that $2 billion is, in fact, value captured by Apple and other American companies.
China makes it possible for those companies to reward their shareholders handsomely and to provide thousands of high paying jobs in America. Yet our politicians, though they likely also use Chinese made Apple iPhones, blame China for stealing American jobs. According to the Bureau of Economic Analysis, America imported $375 billion of goods and services from China in 2010 and exported $115 billion to China. The Sino-U.S. bilateral trade deficit is $260 billion, more than 50% of America’s total of that year.
If we calculate based on value-added contribution by the two countries, using the San Francisco Federal Reserve study, America actually has a trade surplus of $70 billion. So it is quite puzzling to me that people in Washington are worried about America’s trade deficit with China. Using trade policies such as the trade bill being debated now to punish China for alleged currency manipulation actually penalizes companies like Apple, Dell, Gap, Hasbro, Mattel, Nike, and others. It penalizes not only poor American families and small businesses, like my own, that make ends meet by relying on inexpensive Chinese products, but also thousands of high-paid American workers who work for those companies