Forensic Study of the iPhone's Supply Chain Reveals Unexpected Results

Here's a straightforward question with a not-so-easy answer: What does it mean when a product says "Made in China"? If a product was assembled in China but most of its components were in fact built elsewhere, is it accurate to call that a Chinese-made product?

It's not just a matter of semanticsthe political football known as the trade deficit revolves largely on how the concept of "Made in China" is defined. As reported in The Wall Street Journal, two researchers from the Asian Development Bank Institute recently took a look at a wildly popular item that is assembled in China Apple's iPhone and in an exercise that sounds like one of those TV forensic procedurals, the researchers dissected the iPhone and identified the origin of every part that goes into the product.

So how much of the iPhone is actually made, not just assembled, in China? According to the WSJ article, not much: only 3.6% of an iPhone's components are built in China. In fact, nearly twice as much of the gadget's parts are made in the United States (6%), where of course Apple is located and where the product was developed. Most of the iPhone, it turns out, is made in Japan (34%), with 17% being built in Germany, 13% in South Korea, and 27% being made elsewhere.

Quoting Pascal Lamy, director-general of the World Trade Organization, the WSJ writes that "if trade statistics were adjusted to reflect the actual value contributed to a product by different countries, the size of the U.S. trade deficit with China -- $226.88 billion, according to U.S. figures would be cut in half. That means that political tensions over trade deficits are probably larger than they should be."

Not everyone agrees with Lamy's position, of course, but it's interesting that if China were to be credited only with the percentage of the iPhone that it actually produces, rather than assembles, the United States would show a modest trade surplus on the product ($48 million) rather than a deficit on $1.9 billion versus China.

Not stated in the article, but something to bear in mind: This kind of analysis works both ways. Many products "Made in America" might in fact need new labels if a similar breakdown of their components' points of origin were conducted.