Apple's iPhone Supply Chains Make the Protectionist Argument More Ridiculous Than Ever
Protectionists look at an iPhone and see the end of U.S. economic vitality and the emergence of China’s economic dominance. In fact, the iPhone symbolizes a robust global economy largely anchored by the United States. Some don’t recognize that because they are looking at the world as it used to be, instead of as it is today.
It used to be a world in which products were designed, developed, manufactured and assembled in one country, and exported to another. But in an era of cross-border supply chains, few products today are made from top to bottom in one country. Only about one-quarter of all goods traded globally are actually finished products. Three quarters are made up of intermediate goods and services that make a finished product possible. When you see a tag that says “Made in China”, more often than not it is actually assembled in China. To be accurate, most product labels would have to read “Made in China, and Malaysia, and Japan and Korea, and Europe, Canada and Israel – and very much in the United States.”
At one time, it may have made sense to talk about exports vs imports. But today, what is an export? What is an import? If 35 percent of the inputs of a car were added in the United States, 25 percent in Canada, 25 percent in Mexico and 15 percent from beyond North America, is it American, Canadian, Mexican or all of the above?
If you have a hard time assigning a place of national origin to a typical product sourced in many countries today, you are not alone. Officially, the United States runs a $350 billion trade deficit with China. Many look at that number and see the end of U.S. manufacturing. In fact, what they are seeing is the result of an accounting procedure. That $350 billion figure actually represents the value of products finished in China compared to the value of products finished in the United States. Like all countries, the products that China exports (to the United States and elsewhere) contains inputs and services that were added from all over the world – including the United States – before they even arrived in China to be assembled.
The iPhone is frequently cited as a product made in China by an American company. In fact, the iPhone is made all over the world – starting with the United States, where the concept was developed. The chip that serves as its brain is manufactured by a U.S semiconductor company. The software is also designed in the United States. The radio frequency is made by a company based in Ohio, the audio chip by a company in Texas, the controller chips by a company in California, all using their own supply chains that extend around the world.
Not all of the iPhone is made in the United States, not by a longshot. The glass is manufactured in Japan and Taiwan, based on a process developed by U.S-based Corning. The batteries are made by companies in South Korea and China. The cameras are made by U.S.-based Qualcomm and by Sony. The compass is made by a Japan-based company, with locations in seven other countries, including the United States. The gyroscope is made by a Swiss company, with 35 locations around the world. These and other components are finally sent to Taiwan-based Foxconn and Pegatron, to be assembled in China, primarily in Shenzen.
But no product, including an iPhone, is just the sum of its parts. It requires marketing, which for the iPhone is primarily developed by a U.S. firm with offices in Los Angeles and New York. It requires apps, most of which are developed by U.S. software companies. It requires customer support, provided by call centers in several places around the globe, including California, Texas and Indiana.
Supply chains as complex and extensive as these were not possible in the 19thcentury, or even much of the 20th. But the vastly lower costs of transportation, telecommunications and information make them possible – even essential – today. In the 21st century, cross-border supply chains have shaped a global assembly line, in which final products are the sum of intermediate goods and services sourced beyond national borders.