Noteworthy article: "iPhone added $2 billion to trade deficit with China"

We've called our readers' attention before to Carpe Diem, the excellent blog by Dr. Mark J. Perry, professor of economics and finance at the School of Management in the Flint campus of the University of Michigan (see for instance here and here).

Professor Perry recently posted a noteworthy analysis entitled "iPhone added $2 billion to trade deficit w/China." In it, he demonstrates that the entire retail sales price of an Apple iPhone is considered a Chinese export to the US for the calculation of the trade statistics cited by the government and by economists, even though only 1% of that retail price goes to the cost of the assembly in China (the rest goes to various chipmakers and other component suppliers, including the company that designs, engineers, and markets the phone -- Apple).*

The information presented in Professor Perry's post is a powerful argument against protectionism (for more on the problems with protectionism, see here and here).

It also should be a powerful wake-up call to those who have fallen for the alarmist rhetoric that the US is in danger of losing its economic sovereignty to China, or is in danger of having China suddenly refuse to buy any more US Treasurys.

We would advise all investors to read Professor Perry's complete post, and to remember it the next time they hear a politician or an economist bewailing the "trade deficit."

* At the time of publication, the principals of Taylor Frigon Capital Management owned securities issued by Apple (AAPL).

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