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Calculating the Chinese Trade Deficit

Wiseone

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Traditional methods of doing this involve a simple comparison, the dollar value of all Chinese exports to America (ie what America imports from China) compared to the dollar value of all American exports to China, (ie what China imports from America). This calucation has lead to a massive difference where Chinese exports to America far out value American exports to China, which was measured at about 315 Billion dollars in 2012, meaning in terms of dollar value Chinese exports 315 billion dollars of goods to the US than the US exports to China.

However is this really the best way of calucating the trade deficit? Many products, while built in China and sold in America, and are often American products made by American companies which means that the profit from the sale of those products is not wholly going to China which is how it is currently calculated in the way I talked about above.

If you take an iPad for example, it costs roughly 275 dollars in the US and is imported from China, under the normal calucation that would be 275 dollars for China. However if you actually break down where the profit of the sale of an iPad goes, its not all to China or Chinese companies. This chart breaks down the profit of a single iPad sale.



As you can see, only a fraction of the total cost goes to China, which is entirely the labor. So even though the product comes from China, most of the profit is seen by Apple (30%) and its suppliers like Samsung which falls under South Korea and supplies some chips to the iPad.

Longer article on the subject, still fairly short but a very interesting read.

Trade statistics: iPadded | The Economist
 

RabidAlpaca

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I've never been one to be upset by us having a trade deficit. I see it as a good thing. We're getting cheap products and labor which greatly benefit us. Apple is making a killing off China's generosity.

Would anyone be upset if a local store drastically lowered their prices to attract more customers? China devalued their currency for our benefit. Why not take advantage of it.
 

beerftw

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Traditional methods of doing this involve a simple comparison, the dollar value of all Chinese exports to America (ie what America imports from China) compared to the dollar value of all American exports to China, (ie what China imports from America). This calucation has lead to a massive difference where Chinese exports to America far out value American exports to China, which was measured at about 315 Billion dollars in 2012, meaning in terms of dollar value Chinese exports 315 billion dollars of goods to the US than the US exports to China.

However is this really the best way of calucating the trade deficit? Many products, while built in China and sold in America, and are often American products made by American companies which means that the profit from the sale of those products is not wholly going to China which is how it is currently calculated in the way I talked about above.

If you take an iPad for example, it costs roughly 275 dollars in the US and is imported from China, under the normal calucation that would be 275 dollars for China. However if you actually break down where the profit of the sale of an iPad goes, its not all to China or Chinese companies. This chart breaks down the profit of a single iPad sale.



As you can see, only a fraction of the total cost goes to China, which is entirely the labor. So even though the product comes from China, most of the profit is seen by Apple (30%) and its suppliers like Samsung which falls under South Korea and supplies some chips to the iPad.

Longer article on the subject, still fairly short but a very interesting read.

Trade statistics: iPadded | The Economist
another fallacy of trade deficit thinking is that it excludes foreign investments.

for example china has been investing in detroit,and has ban planning on using the old uaw members knowledge to eventually fuel chinese cars,made in detroit.so far the chinese have been buying old parts suppliers,but their eventual plan to build cars here requires heavy investment and would employ lots of people.the chinese themselves admitted it is cheaper to build their cars here then to build them there and ship them.

but with examples like that,if you include foreign investment,america is in a trade surplus with china,without investment,its counted as a deficit.
 

Wiseone

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another fallacy of trade deficit thinking is that it excludes foreign investments.

for example china has been investing in detroit,and has ban planning on using the old uaw members knowledge to eventually fuel chinese cars,made in detroit.so far the chinese have been buying old parts suppliers,but their eventual plan to build cars here requires heavy investment and would employ lots of people.the chinese themselves admitted it is cheaper to build their cars here then to build them there and ship them.

but with examples like that,if you include foreign investment,america is in a trade surplus with china,without investment,its counted as a deficit.
A trade surplus? I don't know about that, it seems far fetched, do you have numbers?
 

beerftw

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A trade surplus? I don't know about that, it seems far fetched, do you have numbers?
ill have to find the article for you,but basically it pointed out that chinas investment in the us offset the trade deficit.
 

fmw

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ill have to find the article for you,but basically it pointed out that chinas investment in the us offset the trade deficit.
I guess you would have to define investment in the U.S. Chinese companies have invested about $25 billion in U.S. companies over the past decade. The trade deficit during that decade has been about $400 billion.
 

beerftw

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I guess you would have to define investment in the U.S. Chinese companies have invested about $25 billion in U.S. companies over the past decade. The trade deficit during that decade has been about $400 billion.
actually from what ive read,and i cant get a solid answer,is that it was over 50 billion in 2012 alone,and it doesnt just include investments in us companies,if china starts a company in the us,hires us employees,but is still chinese owned,that counts as an investment in the us,much the same as american companies building factories in china count as investing in china.
 

a351

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I guess you would have to define investment in the U.S. Chinese companies have invested about $25 billion in U.S. companies over the past decade. The trade deficit during that decade has been about $400 billion.
Actually, the trade deficit with the Chinese for the past two fiscal years alone totaled over 600 billion dollars, and the total shortfall for the decade would amount to over 2 trillion (in nominal terms). I'll assume beerftw is referring to China's ownership and investment in US debt instruments.

Foreign Trade - U.S. Trade with China
 
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