06 April 2018

Parts is Parts

"Parts is parts"
-- Wendy's ad making fun of Mickey D

I've been waiting for some time for the primetime pundits to figure something out. Which is that much of China's "exports" to the USofA isn't visible as such. So today, (I hate) Neil Irwin and Paul Krugman both point to the real issue. Which is that red-blooded, God fearing American corporations use Chinese labor and capital to a significant extent. That iPhone is a Chinese "import", even as Apple is an "American" company.

When Apple assembles an iPhone in Zhengzhou and sells it in Shanghai, that doesn't count as international trade, though the profits accrue to the benefit of a California-based company. The Chinese government has any number of tools to try to weaken that business if it wishes. It could decide that phones made by a foreign company are a national security threat, or shut down plants because of minor regulatory problems.

China is the Great Assembler: it's where components from other countries, like Japan and South Korea, are put together into consumer products for the U.S. market. So a lot of what we import from China is really produced elsewhere.

Just as American capital fled New England for the Rebel South, and then Mexico; they now decamp to China. The impact on American labor is not subtle, which fact played into Orange Julius Caesar's paranoid mind (note to self: some praise paranoia), and he lied on it to the Throne. As previously noted, the USofA no longer has the raw materials to make primary steel or aluminum in quantity. The salvation of redundant coal miners and steel workers is socialism. Taxing, which is what tariffs do (just read up Smoot-Hawley), just makes things worse for everyone. The right wingnuts, naturally, cry "but Pareto says you can't redistribute!!". There are only two choices; 1) let them perish or 2) support them. Socialism makes the support explicit and efficient. Tariffs and other market meddling only rewards the 1%, mostly.

Here's some arithmetic about the issue (2011):
[T]he total wholesale value of the iPhone — for the 3G model it was about $180 — goes on the Chinese import side of the trade ledger. As a result, says economist Rob Feenstra of the University of California, Davis, "The U.S. trade deficit with China tends to be exaggerated."
In a much-talked-about paper, Chinese economist Yuqing Xing took a stab at the figure. "If you look at the manufacturing costs, China's contribution is $6.50."
He says that figure represents the actual cost of assembling each iPhone. And he concludes that if that number were used instead of the entire wholesale cost, the U.S. trade deficit with China would shrink by roughly $2 billion.

So, we know that the net Chinese imports, and by net we mean product fully created within China with Chinese materials and capital and labor, is far less than the $375 billion (yes, Orange Julius Caesar brays $500 billion) that even the mainstream pundits state.

The moral of the story: figures don't lie by liars figure.

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