How the iPhone Widens the US Trade Deficit with China: the Case of the iPhone X

Through an examination of the case of the iPhone X, this paper demonstrates that Chinese companies involved in production of the iPhone X have moved up the value chain. According to the bill of materials, those companies contributed 25% of the value added of the iPhone X. About 45% of the value added of the iPhone X originated from Japan, Korean and other economies. The iPhone trade remains a significant element of the statistics distortion of the Sino-US bilateral trade imbalance. In terms of gross value, the import of one iPhone X results in a $332.75 trade deficit for the US; measured in terms of value added, the deficit is a mere $104. Depreciation of the yuan has very limited power to counterbalance the tariffs imposed by the Trump administration because foreign value added embedded in Chinese exports is 33.9% on average. Simulation results show that to counterbalance a 25% tariff, the yuan would have to depreciate by 43.3% against the US dollar on average; and to fully compensate for a 25% tariff burden on the iPhone X, a 400% depreciation of the yuan would be necessary. Hedging the risk of the punitive US tariffs by depreciation of the yuan is mission impossible.