In this post I showed the negative impact on some US allies from tariffs on Chinese exports to the US, highlighting the importance of distinguishing between gross value and value added. Here is another graphical depiction of how tariffs on Chinese exports to the US are — in part — tariffs on US value added…
Source: Economic Intelligence Unit.
Note that the US value added is estimated at $50-$100 billion, so the midpoint of that range is only about 5% of total Chinese manufacturing exports gross value. Still, I’d hate to be a firm on the side of exporting components etc. to China to be incorporated into Chinese exports. Moreover, the hits to other allies (at least they are for now) like Japan, Korea and Australia, are significant in proportional terms.
do you know how the economist estimated value added by country? US number seems a bit high to — especially if based on 2011 data. total US exports to China then are a bit over $120b (goods), and largest exports of goods (soybeans, aircraft, autos) are all for Chinese end use. Semiconductors are for reexport and they are big, but getting to $50b seems high (of course lots of US designed chips are made elsewhere in Asia, and not sure hwo OECD accounts for this) and some commodities (cotton for ex, hides) are for re-export after being transformed but still a bit surprised by number
plus 40% value of manufacutres = outside China in 11 seems high. OECD is more like 30% I think
Brad Setser: Good question — I have no idea. Like many graphics, there aren’t a lot of details accompanying the picture. I was a little surprised by 40% estimate, but not too far from 50% estimated by Oxford Economics (2017), admittedly for US-China Business Council…
Oxford Economics makes this bold forecast:
” By 2030, we expect US exports to China to rise to more than $520 billion.”
Four times what we exported in 2017!
think the 50% number is just for electronics, which is a big part but not all of US imports from China. Chinese value added in other sectors likely much much higher
“However, the bilateral trade number fails to fully explain the impact of trade with China
on the US economy. As it plugs into the global industrial supply chain, China is the
“Great Assembler.” The OECD estimates that about one-third of the content of Chinese
exports is foreign, compared with just 15 percent of US exports. Although China has
been trying to increase its domestic consumption and move up the value-added chain,
the latest data suggests that even in key growth markets—computer equipment,
electronics, and electrical machinery—the foreign content of goods assembled and reexported
from China is still roughly 50 percent.”
OECD numbers Chinese value added is 2/3 of export value, US 85%) seem about right, but i still don’t quite see how that would generate 50 -100b in US exports to China for re-export in 11 given the composition of US exports
Brad Setser: Time to inquire of the EIU. Will report back.
“You’re a very nosy fella kitty-cat”
https://www.youtube.com/watch?v=9y2y-Tkn7eg
Careful. I’ve found publications don’t like it when you point out errors or “outliers” in their data. They’d much prefer you be wrong so they can keep their air of superiority. I haven’t seen a publication as bad at self-awarness as “The Economist” since Megan McArdle years ago when she worked at “The Atlantic” and none of her editors seemed to care she couldn’t seem to get through a column without at least 3 glaring errors.
In case anyone thinks I pulled the Megan McArdle horrid writing, horrid editing, reference out of the sky:
https://www.pastemagazine.com/articles/2018/02/megan-mcardle-fails-upwards-again-this-time-to-the.html
http://www.latimes.com/business/hiltzik/la-fi-mh-bloombergs-megan-mcardle-gets-social-security-almost-totally-wrong-20150408-column.html
https://theoutline.com/post/2303/megan-mcardle-has-a-lot-of-bad-ideas?zd=1&zi=gpegbyh5
https://inversesquare.wordpress.com/2010/07/24/why-friends-dont-let-friends-cite-the-atlantics-business-and-economics-editor-further-to-the-megan-mcardle-is-always-wrong-chronicles/
(My personal favorite, A compendium of Thomas Levenson’s posts/thoughts on McArdle)
https://inversesquare.wordpress.com/tag/megan-mcardle/
https://www.balloon-juice.com/2011/02/16/megan-mcardle-is-always-wrong-academic-bias-quick-hit-version/
http://agonyin8fits.blogspot.com/2009/08/mcardle-admits-her-anti-health-care.html
It’s no “coincidence” the first pathetic mainstream publication to hire this running joke of a woman, was “The Economist”. And before you ask, NO, I have no idea what drug Michael Bloomberg was on when he hired this women, hopefully a strong opiate post-surgery that rendered his brain temporarily incapacitated. I like Michael Bloomberg, and hate to think he was sober and “of right mind” when McArdle was hired at Bloomberg.
Here’s another one from the poor girl “sniffle sniffle!!!”, Megan McArdle, that had to live at her parents’ house as an adult. Life is tough for a private school spoiled brat, Koch brothers sponsored girl, who apparently thinks statistics are hypothetical examples pulled from her brain during whatever hormonal issues she may be enduring as she writes her columns. (BTW, anyone who is dumb enough believe this little private school snob McArdle ate rice and dried peas for a solid month, must also believe Kopits resides in Princeton):
https://shameproject.com/profile/megan-mcardle/
Lastly, in McArdle’s own words, explaining how none of us “really understand her deep pain” and how in fact, she is actually the girl the story of Little Orphan Annie was based on:
https://twitter.com/asymmetricinfo/status/960548822182191105?lang=en
Menzie keeping us in suspense. I must confess as someone who near hates “The Economist” (OK, I actually do hate and detest them). I’m extremely curious what answer they are going to pull from their nether regions on this one.
https://www.youtube.com/watch?v=gtUUXJhoMUc
Predicting the electronics trade ,12 years out, is probably not accurate at all. Too much change in the field, and in ways you cannot even anticipate today. Very few people understood the cloud a decade ago. Just a tough field for predicitions, in my opinion.
They’ve worked overtime an making “the cloud” into something opaque, vague, and mysterious. All it boils down to is remote servers so individuals and businesses have no control over their own data. Once they have control of your data they can turn around and charge you exorbitant rental fees for it. Because once they get 80% of businesses on “the cloud” they can buy the equipment in large bulk at cheaper prices and say to you “Do you really want the expense of managing your own data!?!?!?!?!” It’s the technology industry’s version of the large apartment complex. They charge you up the nose for forfeiting your own equity rights.
BTW, that’s also basically what they are doing with Uber, Lyft, Grab, and Careem. That’s why GM, Toyota and the rest of big auto corporations are sh*tting in their pants over Uber. Once they get people switched over and dependent on the services they’ll jack up the rates. You’ll be just like the single woman with a bad job forking money over for her rental apartment, thinking she “really got a deal” on her cheap apartment. “X” number of dollars poorer every month, over “X” number of months/years, with NOTHING, i.e no equity to show for all those payments, other than subsisting.
@ Menzie and @ Setser
Of course the exact question of how “The Economist” got their number, I do not know. And although I consider myself no “bozo”, I wager the two of you have much better minds, in that regard, to solve the question. However a “work around” on the number, might be, to do what Nate Silver (and others) do when making predictions. Take several respected sources and use the mean or dominant quoted number. Although knowing you two (from your writings and work) you two probably already saw that “work around” as obvious and self-apparent, and are still curious how “The Economist” got the number. I know Forbes and Bloomberg sometimes see that info of how that got certain numbers as “proprietary” info.
@Menzie and @ Setser
Did you guys see this?? Perhaps it has some answers, or how to say, “sheds some light”, on the answer you are pursuing??
http://www.wiod.org/home
I found it referenced in this article. And for MY money, Bloomberg handles just about every topic under the sun better than “The Economist”. Although obviously, that is just my subjective opinion.
https://www.bloomberg.com/view/articles/2018-03-18/big-u-s-china-trade-deficit-is-smaller-than-it-appears
I’ll tell you another nice thing about that link. WIOD (Groningen) have a TON of Value-Added research papers there in easily downloadable form (a couple you will have to find alternative links for, but they are out there). One or two at the bottom of the page explain in great detail “the nuts and bolts” of how Groningen tabulate their Database. I think Bloomberg said that they only have up to 2014 completely tabulated because of all the complications assimilating all the Value-Added data.
Brad, if there’s an RSS feed for your blog, I’d appreciate knowing, as I would be much more likely to read your writings if your site offered an RSS feed. Thanks.
Apple sold about 80 million iPhones last year and they seem to be all assembled in China.
“…since Apple’s ubiquitous iPhone is manufactured in China, it would be logical to assume that every iPhone exported from China earns that nation a handsome profit. But that’s hardly the case. An analysis in 2010 revealed that while the iPhone 4 cost $187.51 at the factory gate in China, Korea contributed $80.05 worth of components, the U.S. $22.88, Chinese Taipei $20.75 and Germany $16.08. China’s contribution in assembling the final product was just $6.50…”
The Apple 8 and X may have higher value added U.S. components. Maybe, $50 per iPhone. So, U.S. value added for only iPhones may be $4 billion.
2018 article:
“…the iPhone X…IHS Markit estimates its components cost a total of $370.25. Of that, $110 goes to Samsung Electronics in South Korea for supplying displays. Another $44.45 goes to Japan’s Toshiba Corp and South Korea’s SK Hynix for memory chips…manufacturers in China like Foxconn, represents only an estimated 3 to 6 percent of the manufacturing cost…Apple has responded to Trump’s concerns with a pledge to bring some suppliers to the United States. It said in January it planned to pay $55 billion to U.S. suppliers this year.”
I found the Reuters story that PeakIgnorance lifted his quote from without a proper attribution (Reuters should sue Peaky for this):
https://www.reuters.com/article/us-usa-trade-china-apple/designed-in-california-made-in-china-how-the-iphone-skews-u-s-trade-deficit-idUSKBN1GX1GZ
But as I read this story it hit me why Peaky did not want us to know where he lifted that quote. It was an excellent report that undermines much of the intellectual garbage we get from PeakyBoo.
Pgl, anyone can find the link I cited by cutting & pasting the quote, something you’re familiar with, since that’s what your articles are mostly about, along with your biased and ignorant opinions when the point isn’t hysterical and ridiculous negative name calling. Anyway, people aren’t as stupid as you believe.
PeakTrader: As a matter of course, I think the discussion would be enhanced if you provided URLs for the documents you quote from and/or cite. I for one discount every quote you provide w/o source.
I am not saying other people are stupid. Here is the gem from Wikipedia:
‘Plagiarism is the “wrongful appropriation” and “stealing and publication” of another author’s “language, thoughts, ideas, or expressions” and the representation of them as one’s own original work.’
You are stealing other people’s intellectual property by not citing your source. You of all people should not be complaining that the Chinese steal IP as you do it routinely.
Of course Menzie makes my other point for me – no one trusts anything you write here.
pgl, I had just finished reading that article when I read your comment. I found this part interesting:
“Take a look at the iPhone X. IHS Markit (based in London) estimates its components cost a total of $370.25. Of that, $110 goes to Samsung Electronics in South Korea for supplying displays. Another $44.45 goes to Japan’s Toshiba Corp and South Korea’s SK Hynix for memory chips.
Other suppliers from Taiwan, the United States and Europe also take their portion, while assembly, done by contract manufacturers in China like Foxconn, represents only an estimated 3 to 6 percent of the manufacturing cost.”
Would it be reasonable to suggest that the U.S. component contribution is minuscule? In the case of Apple and its iPhone, it would appear that this is a non-issue. It appears to be that nearly all of the iPhone hardware and labor are non-U.S. origin with only the IP/design from the U.S. That IP/design would be done in the U.S. regardless of labor/component sourcing, so anything from non-U.S. sources could be considered a net loss to the U.S. economy in terms of manufacturing and jobs… presuming that U.S. sources could be competitive.
“For its part, Apple has responded to Trump’s concerns with a pledge to bring some suppliers to the United States. It said in January it planned to pay $55 billion to U.S. suppliers this year.” . Well then, I wonder how that suddenly became viable?
Apple’s gross profit margin is around 40%, net AT is 23%. That’s what IP and marketing are worth.
Money for nothin’ and chicks for free.
https://www.apple.com/newsroom/pdfs/Q1_FY18_Consolidated_Financial_Statements.pdf
pgl,
this is a couple of years old, but provides some better detail about the iPhone materials sources: http://www.businessinsider.com/where-iphone-parts-come-from-2016-4
Interesting chart. Samsung and Apple are big rivals in terms of selling smart phones. Interesting that some of the components of the iPhone are made by Samsung!
@ pgi
Samsung has made a far superior phone to Apple for years now. The problem was the Lithium-ion batteries and people who are too dumb to understand how to use Lithium-Ion batteries. Other than not providing a “retard proof” phone, they have out-shined Apple for awhile now. The people who slobber compliments about Apple’s i-Phone all day, are the same people who thought AT&T was the greatest phone company in the world in the late ’70s before the ’82 breakup. Bathing in the happiness of ignorance.
Once again PeakIgnorance provides some quote without an attribution or even a link. I guess no one ever taught him how to do this? Try this classic paper by Kenneth L. Kraemer, Greg Linden, and Jason Dedrick
https://economiadeservicos.com/wp-content/uploads/2017/04/value_ipad_iphone.pdf
That is $4 billion for only Apple iPhones.
Regarding Brad Setser’s statement, only U.S. soybeans, corn, civilian aircraft, autos, and coal exports to China, presumably end use goods, total roughly $30 billion.
Are you incapable of providing a source for ANYTHING? Try this:
https://www.census.gov/foreign-trade/statistics/product/enduse/exports/c5700.html
We do not export that much corn to China but the other 4 categories total more than $40 billion for 2017.
The WIOD database for the global data is a .xlsb file, and it’s kind of a b____ to open or read. It’s an unusual format (or one I don’t remember seeing) and it’s a format I guess Excel kicks out for “macros”. In fact, I don’t think it’s operating properly for me, I have like 4 columns showing and the rest of it looks like a large grey screen. If anyone has any advice on .xlsb files in “Numbers” or “OpenOffice” I’d be glad to hear it. The one for China seems to work fine and so I assume the individual one for the USA is also fine. But maybe because the Global Input-Output database is so huge, it’s kind of a “cumbersome”/”unwieldy” file.
I think US team are well aware of the globalized supply chains of productions. The current trade actions are just “fire reconnaissance” of US attempts
1. To more realistically simulate actual (and may be eventual) trade wars with China, thus providing US the platform to check on the possible effects of each of its tactics in store
2. To check on China’s (also US’s) extent of readiness
– Government and populace’s resolve, response and feelings.
– Organizations
– Talent pool and capabilities technology gaps, levels, speed of advancements and likely ways of counter attacks and effects, alternatives to nullify or weaken attacks.
3. Next step would be to try to force on China concessions, failing which means going back to the drawing board for another stage.
I think you are painting a rather flattering picture of the sophistication of US policy analysis.
It is US modus operandi to provide a narrative(the truth of which the US leaders do not really care or have evidence for)
for any sanctions, threats, missiles attacks, overthrow of regimes.
Examples:
Alleged Iraqi WMD, Syrian chemical attacks, Skripal poisoning murder attempt,…and of course China’s alleged unfair trade practices leading to serious trade imbalance,…
Iraqi WMD… you have a point there.
Syrian chemical attacks… hard to say, probably more to the story, but probably true, or true-ish (ie, it had been going on for a while, but only made it to the action list for US political reasons…)
Skripal. I actually took this to be another note of protest from the Russians. I understood this to be their way of asking for a deal. They want to be let out of the closet, and this is their (very Russian) way of rattling the doorknob. Numbers say there is indeed a viable deal possible.
China…well, if China would recognize other countries’ claims on the SCS and lease back the reefs from the Philippines, it would have far superior claim to the moral high ground without compromising its security position. Hard power projection is getting in the way of soft power projection.
Rock star Syrian chemical attacks: likely false flags perpetrated by jihadis funded by Saudi Arabia, Qatar, Emirates and CIA. Soldiers of the jihad are mostly illegal immigrants.
Syria is not like Vietnam, the US is supporting the Salafi equivalent of the VC, while attacking their offspring who declared the caliphate before they got rid of Assad.
The US needs war and uses a narrative to keep the public as involved as Germans in 1944.
Agree in full. The Kenneth L. Kraemer, Greg Linden, and Jason Dedrick paper was written back in 2011 but it remains a great read.
That was supposed to be a reply to the excellent comment from Bruce Hall!
Steven, not a chance China gives up its ScS claims as it would mean US building military bases in ScS and China would be left with no right to stop that militarily.
Menzie
I’m not trying to be funny or facetious here, I am actually dying to know what “EIU” had to say in response to your query. I know your professorial duties leave you with a full plate, but I am kind dying to know. Also, I am wondering if you had one of your “David Letterman style sardonic humor” moments here with the graph label “Troika”—BTW I hate the European version of “Troika” and am kind of assuming this is a mild stab at them by you).
https://twitter.com/menzie_chinn/status/990648346950930432
Saw this and thought that I would pass it on to the millions of Kevin Hassett groupies:
http://freakonomics.com/podcast/awesome-terrible-tax-cuts-part-1/
Open question: Is it required every other host of an NPR show have an incredibly annoying lisp?? Asking for a friend.
I suppose Apple’s 40% gross profit margin is included as part of trade surplus to the advantage of China? I think the issue is even more complicated if the transfer pricing operations engineered for tax avoidance are considered.
Expect tough talk when US trade hawks visit China, not an end to the row
http://m.scmp.com/news/china/diplomacy-defence/article/2143836/expect-tough-talk-when-us-trade-hawks-visit-china-not