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How the iPhone Widens the United States Trade Deficit with the People's Republic of China

Publication | December 2010
How the iPhone Widens the United States Trade Deficit with the People's Republic of China

This case study of the iPhone shows the People's Republic of China exporting this high-tech good while the United States imports the high-tech good one of its firms invented in an apparent reversal of trade patterns.

In this paper, the authors use the iPhone as a case to show that even high-tech products invented by United States (US) companies will not increase US exports, but on the contrary exacerbate the US trade deficit. The iPhone contributed US$1.9 billion to the US trade deficit with the People's Republic of China (PRC). Unprecedented globalization, well organized global production networks, repaid development of cross-country production fragmentation, and low transportation costs all contributed to rational firms such as Apple making business decisions that contributed directly to the US trade deficit reduction. Global production networks and highly specialized production processes apparently reverse trade patterns: developing countries such as the PRC export high-tech goods—like the iPhone—while industrialized countries such as the US import the high-tech goods they themselves invented. In addition, conventional trade statistics greatly inflate bilateral trade deficits between a country used as export-platform by multinational firms and its destination countries.

WORKING PAPER NO: 257