International division of labor in iPhone value chain: production is highly concentrated in China


International division of labor in iPhone value chain: production is highly concentrated in China

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International division of labor in the iPhone value chain

Reporter Tao Tao

China and the United States as a world trade superpower, bilateral trade is huge, and they are deeply integrated into the global supply chain. But China and the US belong to different regional production networks, and the division of labor between the two countries in the product value chain is mostly in the East Asian production network. Under this division of labor, any changes in the division of labor or external conditions will lead to more complicated effects.

A recent report by Goldman Sachs pointed out that in the global supply chain of Apple smartphones, China's production costs account for 25%~35%, of which about 15% of the labor costs involved in parts processing and final assembly. The report estimates that if iPhone production and assembly in China are moved to the United States, the production cost of iPhone will increase by 37%. To this end, the United States adjusts its processes and products to adapt to production automation and increase productivity. After 5 years, some new costs are expected to be digested. The price of iPhone will rise by 15% when Apple Corp profits remain unchanged. Of course, this is not a reality. Even for some reason, Chinese factories in American companies have all been withdrawn to the US, and iPhone production and assembly will not return to the US. Because only a few of the factories that produce and assemble apples in China belong to American companies.

The Apple Corp published 2017 BOM in February this year shows that iPhone suppliers have 183 enterprises in 14 countries and regions such as the United States, Germany, Japan, Korea, Taiwan, China and other countries. For the number of suppliers of core components, the United States, Japan and China Taiwan account for the most, accounting for 69.74% of the total. From the value chain, American suppliers mainly provide core components such as core chips, memory and integrated circuits. Japanese suppliers provide optical components and display panels, such as camera modules. China's Taiwan suppliers are mainly engaged in printed circuit board production, central processor core chips and final assembly. For display panels and some chips. There are 33 suppliers in mainland China who provide non core components such as acoustic components and structural parts for iPhone.

It can be seen that the supply chain of iPhone is global. Japan, Korea, the United States, China, Taiwan and Mainland China are deeply involved in the apple mobile phone supply chain.

But the production of iPhone is highly concentrated in China. A total of 183 suppliers have 748 factories for the Apple Corp, which are located in 26 countries and regions, such as Austria, Czech, Brazil, Mexico, Philippines, Indonesia, Vietnam and Mainland China. 347 of these plants are located in mainland China, accounting for 46.4%. The proportion of core components factories, non core parts factories and packaging and assembly plants in mainland China is 30.5%, 54.1% and 71.32% respectively. That is to say, not only the iPhone assembly is concentrated in China, but more than half of the non core parts and spare parts factories and nearly 1/3 of the core spare parts factories are also located in the mainland of China. In the 347 factories, in addition to the factories of Chinese suppliers, most of them are non American suppliers in China, such as Japan, South Korea and Taiwan, China, and only 57 are established by us suppliers.

IPhone production is highly concentrated in mainland China, which seems to be a deep division between China and the United States, but in fact it is the embodiment of East Asian production network relationship. The division of labor between China and Japan, South Korea and China's Taiwan Apple suppliers is more closely related than the degree of division of labor between China and the United States. This is the Chinese and American division of labor in the iPhone value chain.

In this division of labor and the United States, if China's labor costs rise too fast or the two countries have trade barriers, it will not only affect the production chain, interest pattern and iPhone price of iPhone US suppliers, but also affect the production and interest of iPhone suppliers in other countries. Once trade barriers are bilateral, the impact is even more complicated.

As a result of the intra product division of labor, the multiple crossing of the country leads to multiple customs and transport costs; on the other hand, the tariff is imposed on the total import rather than the added value of the exporter, and the exporter must also bear the tax on the added value of the other country included in the export. So tax is a cumulative effect. In addition, the export of one country includes a number of countries' added value, a country's export is taxed, and the added value of all the other countries in the export is also taxed, so that the cost of the added value of other countries is rising indirectly, so that the export of other countries is affected. The deeper the degree of division between countries, the greater the number of round-trip imports and exports, the greater the cumulative effect and the spread effect of trade barriers such as tariffs.

Using the world input-output table (WIOD), the author calculated the average number of added value cross border between China and the United States in bilateral trade, and the relationship between the two countries at the national level. The results of 2014 are 1.00016 and 1.00002. It shows that in China's exports to the United States, China's added value in China's exports to the United States and again in China's exports to the United States is 0.016%; in turn, the US export to China is not much more than 0.02% of the second probability of US exports from the United States to China. The two values are very small, indicating that the two countries are not in the same production network.

Under such circumstances, the accumulative effect of unilateral taxation in China and the United States is not large. If the two countries taxed at the same time, the number of Chinese added value exports to the United States in bilateral trade changed to 1.005, and the average number of us added value exports to China increased to 1.022, much greater than that of unilateral taxation, and greater impact on the United States.

The author also calculated the average number of added value of Canada, Mexico, Japan and South Korea across the Sino US border in bilateral trade between China and the United States, which were 1.018, 1.016, 1.007 and 1.006 respectively. The number of Canada and Mexico is much greater than that of Japan and Korea, which is close to that of the United States, and the number of Japan and Korea is close to that of China. This data shows that the United States has closer production network relationships with Canada and Mexico, and Japan and Korea have closer relationship with China. Sino US trade barriers will not only affect Japan and Korea, but also bring disaster to Canada and Mexico.

The above production network relationship is not only reflected in the iPhone supply chain, but also has similar characteristics in the global value chain of the automobile.

The R & D of automotive global value chain is global and production is regional. The large auto companies in the United States and Japan have a complete vehicle assembly plant in the major automobile consumer countries and regions, and only a few large parts suppliers have global production. Most parts suppliers are arranged around the vehicle assembly plant, providing a complete set of production and forming a regional car production. Network. Japan and South Korea's auto suppliers in China are obviously concentrated in Japan and South Korea and Chinese enterprises, and the dependence of American auto companies on American suppliers is low. In addition to local suppliers in China, American enterprises will also choose European or Japanese and Korean suppliers. American enterprises are partly integrated into the East Asian automobile production network.

As a world trade superpower, China and the United States both have a huge bilateral trade and are deeply integrated into the global supply chain. But China and the US belong to different regional production networks, and the division of labor between the two countries in the product value chain is mostly in the East Asian production network. Under this division of labor, any changes in division of labor or external conditions will lead to more complicated effects. Multinational corporations should take this factor into consideration when implementing the global production layout, especially when governments formulate trade policies. For example, it is self-evident to establish the China Japan Korea Free Trade Area and the wider East Asian Free Trade Area.

(the writer is deputy director of Department of international economics and trade, School of economics, Peking University)


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