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How the iPhone Widens the U.S. Trade Deficit with China: The Case of the iPhone X

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  • Yuqing Xing

    (National Graduate Institute for Policy Studies, 7-22-1 Roppongi, Minato-ku, Tokyo 106-8677, Japan)

Abstract

Through an examination of the case of the iPhone X, this paper demonstrates that Chinese companies involved in the production of the iPhone X have moved up along the global value chain. According to the bill of materials, those companies contributed 25.4% of the value added of the iPhone X. About 45% of the value added of the iPhone X originated in Japan, South Korea, and other economies. The iPhone trade remains a significant element of the statistical distortion of the China¨CUS bilateral trade imbalance. In terms of gross value, the import of one iPhone X results in a USD332.75 trade deficit for the US; measured in terms of the value added, however the deficit is a mere USD104. The depreciation of the Chinese yuan (CNY) has very limited power to counterbalance the tariffs imposed by the Trump administration because the foreign value added embedded in Chinese exports is 33.9% on average. Simulation results show that to counterbalance a 25% tariff, the CNY would have to depreciate by 43.3% against the US dollar on average, and to fully compensate for a 25% tariff burden on the iPhone X, a 400% depreciation of the CNY would be necessary. Hedging the risk of the punitive U.S. tariffs by depreciating the CNY is impossible.

Suggested Citation

  • Yuqing Xing, 2020. "How the iPhone Widens the U.S. Trade Deficit with China: The Case of the iPhone X," Frontiers of Economics in China-Selected Publications from Chinese Universities, Higher Education Press, vol. 15(4), pages 642-658, December.
    • Handle: RePEc:fec:journl:v:15:y:2020:i:4:p:642-658
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    File URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-011-020-0026-8
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      by noreply@blogger.com (Urbanomics) in Urbanomics on 2023-10-22 04:36:00

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    Cited by:

    1. Yuning Gao & Bo Meng & Gabriele Suder & Jiabai Ye & Yongping Sun, . "Making global value chains visible: Transnational corporations versus domestically owned firms," UNCTAD Transnational Corporations Journal, United Nations Conference on Trade and Development.
    2. Bohn, Timon & Brakman, Steven & Dietzenbacher, Erik, 2021. "From exports to value added to income: Accounting for bilateral income transfers," Journal of International Economics, Elsevier, vol. 131(C).
    3. Ben Shepherd, 2022. "Modelling global value chains: From trade costs to policy impacts," The World Economy, Wiley Blackwell, vol. 45(8), pages 2478-2509, August.
    4. Meng, Bo & Ye, Ming, 2022. "Smile curves in global value chains: Foreign- vs. domestic-owned firms; the U.S. vs. China," Structural Change and Economic Dynamics, Elsevier, vol. 60(C), pages 15-29.
    5. Xuan Nguyen & Yuqing Xing, 2022. "Exporting independently or entering the global market as a contract manufacturer?," GRIPS Discussion Papers 22-04, National Graduate Institute for Policy Studies.

    More about this item

    Keywords

    China; US; value added; global value chains (GVCs); iPhone; Chinese yuan (CNY);
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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