Is the iPhone made in China? The question is harder to answer than you might imagine. At first sight, the statistics seem open and shut. The Chinese make the iPhones, the Americans buy the iPhones, and the result is an increase in the US’s trade deficit with China: $1.9bn in 2009, according to Yuqing Xing of the National Graduate Institute for Policy Studies in Tokyo, and Neal Detert of the Asian Development Bank.
Bilateral trade deficits are funny numbers at the best of times, though. Our bilateral trade deficit with China, for instance, is the total cost of all the things we buy from China, minus the total cost of all the things China buys from us. This is not necessarily an interesting figure.
To see why, imagine a world with three trading nations: Narnia, Mordor and Prydain. Narnia makes wine, Mordor makes iron and Prydain makes cloth. But the main demand for wine is in Mordor, where they are intemperate drinkers, while Prydain wants iron and the preening Narnians want cloth. Mordor will run a bilateral trade deficit with Narnia, Prydain will run one with Mordor, and yet every country might find its exports exactly balanced its imports overall.