Dissecting the iPhone Supply Chain

Clyde Prestowitz raised an interesting point earlier in March in his Foreign Policy column when he looked into where Apple products are actually made. A study done by the Asian Development Bank Institute (ADBI) revealed that China should not really be considered the biggest manufacturer of iPhones.

Prestowitz notes that scholars have argued that of the $500 retail price of an iPhone, about $180 comes from the “manufacturing and assembly processes done in China.” This accounts for a $1.9 billion annual contribution to the U.S. trade deficit. The rest of the price tag “results from the design, software development, marketing, shipping, and selling done in the United States.”

Prestowitz explains, however, that “U.S. customs attributes the entire manufacturing value of the iPhone to China” and does not account for the fact that the parts were actually manufactured in other countries. The ADBI study revealed that China imports the parts used in iPhones from places like Taiwan, South Korea, and Japan. China merely assembles these parts, and thus only adds a value of around $6 to the final iPhone retail price. Thus, the U.S. has a trade deficit with a number of Asian countries, not just China.

The details of the supply chain also pointed to declining competitiveness in U.S. manufacturing. The parts imported by China are capital and technology-intensive, which explains why they are being produced in places like Japan, South Korea, and Taiwan. This then highlights the fact that the U.S. is not producing what it, according to Prestowitz, is supposed to have a comparative advantage in.

 

Check out this video and summary of an earlier discussion with Clyde at the Wilson Center on his book, The Betrayal of American Prosperity: Free Market Delusions, America’s Decline, and How We Must Compete in the Post-Dollar Era

 

Posted by: Pokyee Yu

Sources: Foreign Policy, The Asian Development Bank Institute, The Wall Street Journal

Photo Credit: iPhone 4 courtesy of flickr user superstrikertwo