Take the 32GB iPhone 7 for example. According to a report by IHS Markit, China makes just US$5 putting it together. Chinese companies also make the battery, Bluetooth and WiFi components, which together cost less than US$10.
By comparison, Korea, Japan and Taiwan stand to gain much more. IHS Markit said the most expensive part of the iPhone 7 is the display. Anyone who had to replace a cracked iPhone screen before would know that is true. The part which costs US$43 is supplied by Korea’s Samsung and LG, as well as two companies in Japan.
The phone’s processor, the bit that puts the smart in smartphone, costs US$27 and is made by Taiwan’s TSMC. True, some of the Korean, Japanese and Taiwanese companies have manufacturing facilities in mainland China, but analysts said their top of the range products are almost always made at home. Because the work is sensitive but not particularly labour-intensive, China has no competitive advantage.
In fact the component trade is so powerful; all three economies run persistent trade surpluses with China. In 2016 alone, Taiwan’s surplus with the mainland reached nearly US$100 billion. That is an impressive feat for an economy that is just over US$500 billion in size.
So when an iPhone is shipped across the Pacific, its full US$225 cost is recorded as Chinese export to the US. In reality, China’s actual gain is less than 7 per cent of that.
