Sino-US supply chain is stronger than trade war

If you listen to President Trump discussing trade, you will feel that the international supply chain does not exist. For the most important US-China trade, Trump’s thinking is roughly as follows: goods and services are either “made in the United States” or “made in China.” When the product is manufactured in the United States and exported to China, the United States “wins”; when the United States imports Chinese-made products, the United States “loses.”

The problem is that Trump’s view of trade is a relic of a distant era, when products were actually made in one country and sold to another. But that model has long ceased to exist. Containerized transportation in the 1960s and the Internet in the 1990s completely changed the pattern of trade. These revolutionary changes have dramatically reduced the cost of transporting international goods and services. The new global supply chain leverages the differences in cost and skill across countries to produce more affordable products.

In today’s global economy, most products are assembled in parts of the country and then sold to parts of the world. Purely “Made in the USA” and “Made in China” or products made by any single country are much less. There is no doubt that this is a boon to global consumers.

But from car manufacturing to telephony, the globalization of the supply chain has led to the outsourcing of jobs in the United States to other countries. This is why Trump believes that (launching) a trade war is a good election politics.

Consider two iconic cases: Trump’s war against Huawei and its demand for Apple to make mobile phones in the United States. This is a “double supply chain record.”

Despite constant threats, the US government has yet to implement its commitment to ban Huawei from doing business with US companies. What is the reason? Because Huawei is very important to American companies. About a quarter of Huawei’s products are supplied by top US technology companies led by Broadcom and Qualcomm, which earn far more than $1 billion, no less than Huawei’s Chinese suppliers.

Looking away from American parts in Chinese equipment to American products assembled in China – Apple. On the back cover of all Apple products, the words “California Apple Design, China Assembly” are marked. Please note that the word “Made in China” is not used because Apple products are almost all assembled in mainland China. The assemblers are mainly Taiwanese companies Foxconn, but their parts are from the United States, Asia and Europe. The added value of assemblers such as Foxconn usually only accounts for about 5% of the total cost of Apple equipment. Other costs come from parts and components, and none of them come from China. So “Made in China” is so much.

Studies have shown that the total cost of Apple’s iPhoneXsMax is about $ 453. Compared with the retail price of $ 1,99, it is not difficult to understand why Apple is one of the world’s largest companies by market value. Therefore, China is an indispensable part of Apple’s success, especially considering that China is the largest market for Apple products outside the US.

As long as you consider the supply chain that supports Apple and Huawei and the great value that American companies get from it, it’s easy to see why companies like Apple and Qualcomm want to end the trade war. But in terms of Sino-US relations, at least some people in the Trump administration regard this supply chain as an enemy. They hope that the two economies will be “decoupled” by separating the supply chains that link the two economies together. But “decoupling” is not easy, and its economic cost is extremely high.

Most importantly, the United States and China are interdependent and the supply chains are interconnected, forming a close bond that links the two countries. This is also the reason why the author strongly opposes the requirement of “decoupling” between the United States and China in the name of national security. Because “decoupling” reduces the cost of conflict between the United States and China, it will seriously endanger US national security.

The global supply chain not only benefits consumers, but also a strong reason to end the US-China trade confrontation.