Trump Misunderstands Trade Again – Apple iPhone Edition

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That President Donald Trump misunderstands the basics of trade is obvious enough, he’d not be slapping import taxes upon American consumers if that weren’t so. But it’s interesting to note quite how far he’s misunderstanding the basics here for he’s going further back into said basics errors than just trade. He’s getting the point of our having an economy at all wrong.

The point being that the reason we have an economy at all is so that we can all consume more. It’s not, absolutely not, so that we can all work more. But that’s the assumption that Trump is making here about Apple’s iPhone – that we want the work, not the ability to have an iPhone.

President Donald Trump said Friday he wasn’t concerned about Apple’s future and again encouraged CEO Tim Cook to move his supply chain to the United States. His comments came after the company warned investors this week that its earnings will be badly weakened by a sales slowdown brought on in part by Trump’s trade war with China. Apple’s (APPL) announcement rattled investors and global markets.
“Apple makes their product in China. I told Tim Cook, who’s a friend of mine … ‘Make your products in the United States,'” Trump said. “China is the biggest beneficiary of Apple — not us.”
“My focus is the United States. I want to get those companies to come back,” he added. “I want Apple to make their iPhones and all of the great things that they make in the United States.”

This is just blitheringly stupid economics. What we desire is the ability to have and use an iPhone. This is true of us as individuals, obviously enough. None of us really does want to get out the soldering kit and start ordering touchscreens from wherever now, do we? Quite, we want to take the completed item out of the box and start to use it – we wish to consume an iPhone.

Further, we’d like to be able to consume an iPhone while doing the least amount of work possible as the cost of doing so. The same is true of a nation – we want to be able to consume stuff while having to do the least work possible to be able to do so.

That’s the most basic reason for having an economy at all. Other people do what they’re better at, we do some stuff too, we all swap around the resulting production. And trade is just us doing exactly that. So, if it’s cheaper overall for China to make the iPhones then that’s where they should be made. We get to consume an iPhone in return for the smallest amount of work possible that we have to do.

So, see what Trump is saying? That we positively desire to do that work of building iPhones. Which we don’t, the very idea is ludicrous.

Isn’t it ever so slightly worrying when the people who purport to rule the world on our behalf don’t actually understand how the world works.

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Rhoda Klapp
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Rhoda Klapp

Obviously it’s ideal if those pesky flyover states have cheap iphones and no jobs. There’s a plentiful supply of opioids and guns for their futures to be taken care of. Far better that those other flyover folk in China do the work for them in effective indentured servitude. Double the misery, but there is no monetary value to ascribe to that so it doesn’t matter to an economist.

TD
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TD

Many of the flyover states are doing pretty well right now.

Stanford did a study some years ago and determined that the final assembly cost done in China was a very small portion of the total cost of an iPhone, as programming and design work was done largely in the US and parts were sourced from all over. Yet because the end product was shipped from China the full value is considered to be a product of China. Ironically, all the American labor that went into iPhones is now being hit with tariffs.

Rhoda Klapp
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Rhoda Klapp

If there is some kind of revival in the rust belt, great. If it’s as a result of Trump policy, that’s great too. If some apple-buying fool has to pay a little more for a luxury good as a result of anything at all, it doesn’t bother me. Other cell phones are available…

TD
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TD

Many of the rust belt states have seen some improvement, but a number of them elected Republican administrations after 2010 though the Dems recovered some ground in 2018. Still, I’d credit the state’s policies more than Trump’s, but some of Trump’s helped. However, lots of manufactures are now being hit with higher costs because of the tariffs on materials. Ditto for many construction firms. And manufacturing in the US remains high, but it’s mostly pretty automated. Also, electronics assembly is pretty low paid work, even in the US. But why do we not want imports? Lot of people are involved… Read more »

HJ777
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HJ777

“Far better that those other flyover folk in China do the work for them in effective indentured servitude.”

Even in China, people have a choice of where they work – and because of this wages have been rising rapidly as employers compete for labour. If someone deems that the best option for them is to work assembling iPhones, who are you to day that they should choose work that suits/pays them less? Or are you going to offer them a better paid alternative?

Rhoda Klapp
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Rhoda Klapp

I thought I’d replied, but it’s not here. So, as you so rightly imply, what Chinese workers do is none of my business. It is POTUS’s business if folks in the US don’t have jobs. It is one of Tiom’s bonnet bees if he does it with tariffs. Taxing an activity of which one would like less, imports, while (of course) maintaining revenue neutrality by taxing something else less.. Just like Tim’s other bonnet bee, Pigou taxes. Can we be spared the repetition while the bees fight it out?

HJ777
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HJ777

Can you explain who you think wants less imports? Who is currently being forced to accept imports against their will?

I was under the impression that if any American wants to purchase fewer imported products, then they are already entirely free to do do.

Rhoda Klapp
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Rhoda Klapp

Trump want less imports. See Abraham Lincoln on shirt imports.

HJ777
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HJ777

Then he is free to buy fewer imported products. If Americans agree with him, they will buy fewer imports too, but if they don’t, they won’t.

That way, everyone gets what they want.

They myth is that exports are more desirable than imports. It’s nonsense. Imports are the whole point of trade – you wouldn’t trade internationally if you didn’t want to acquire imports. Exports are merely the cost.

Rhoda Klapp
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Rhoda Klapp

Well, lucky Solomon Islands, no meaningful exports at all, no GDP/cap, and poor old Deutschland, massive surplus, corpses on the street?

HJ777
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HJ777

Are you as stupid as you make out?

The Germans are more productive and both make more for themselves and can afford more imports.

The USA has been running a trade deficit for decades and they are rich.

Rhoda Klapp
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Rhoda Klapp

Showing that imports may be useful or not. There is no general rule. If the US has been running a deficit and Germany a surplus and they are both rich, I’d struggle to see where imports are good in general, whereas particular imports may be bad and perhaps ought to be discouraged. Free trade works, for some. So does protectionism for others. It all depends on circumstances. What about those Solomon Islands, where is their comparitive advantage?

HJ777
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HJ777

I’d struggle to see where imports are good in general, … You struggle to see many things. That’s because you’re not very bright. Give me some examples of where imports are not useful or where particular imports may be bad. The people who choose those imports clearly do not agree with you. How come you believe that you know better than them what is in their interests? Every country must have some comparative advantages, by definition. At a guess, in the case of the Solomon Islands, tourism is likely to be one of them. The Solomon Islands imports many key… Read more »

Rhoda Klapp
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Rhoda Klapp

Are you incapable of having a discussion without ad homs? Note, I didn’t call you a name or impugn your intelligence.

HJ777
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HJ777

Are you incapable of providing the examples I asked for?

No matter how many times the simplest economic concepts are explained to you you keep misunderstanding. It can only be wilful.

Rhoda Klapp
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Rhoda Klapp

If these economic concepts are indeed so simple and so universal, why are they universally found to require exceptions? Maybe you can think of a major economy which does not operate protectionism in one of its forms? You give me dogma and demand it be accepted. Nope.

HJ777
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HJ777

They have not been universally found to require exceptions – precisely the opposite, in fact. There are exceptions made but this is not because they are sensible economic policy. Many politicians do not have much economic understanding and see only the benefit of protecting an industry, not the wider (but bigger) costs of not protecting it. Industries have an incentive (and the means) to lobby for ‘protection’ because the benefit to them is obvious. The costs to others are wider and more dispersed so those who are paying the price often do not realise that they are, and the cost… Read more »

Rhoda Klapp
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Rhoda Klapp

Please clarify. Which major country does not have protectionism in some form?

HJ777
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HJ777

I didn’t say that they don’t have some protectionist policies

I said that they have not been ‘found to require them’. They are imposed generally for political reasons thanks to lobbying by special interests, and that they are self harming. Even Robert Peel eventually came to this conclusion.

The idea that they do ‘require them’ is the economically illiterate dogma of Mercantilists.

Rhoda Klapp
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Rhoda Klapp

Would I be pushing it to suggest that like socialism, true economics will work, but it has never been tried?

Putting it in economic theory terms, free trade has negative externalities which are countered politically by protectionist measures. Always and everywhere.

HJ777
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HJ777

You’d be wrong.

Tariff-free free trade was the policy following the repeal of the Corn Laws. It was a huge economic success. Check your economic history.

As tariffs have fallen over the last 30 years, international trade and prosperity has expanded vastly.

Protectionism, or its ultimate incarnation, Autarky, has been tried, however. It has always failed disastrously.

So your assertion has no substance. Anyone can make assertions, however foolish.

HJ777
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HJ777

People in those US ‘flyover’ states will pay for their iPhones in US Dollars.

What do you think the Chinese can do with those Dollars other than spend them on US-produced goods or invest in the US? Might that not create jobs for US workers?

Rhoda Klapp
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Rhoda Klapp

Buy Africa? Dollars do not have to be spent in the US. When it was the japanese in the 80s they spent their bucks on buying US real estate, economy fuctup, no jobs created.

HJ777
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HJ777

if the people selling ‘Africa’ to them will accept Dollars, what are they going to do with those Dollars? The US can print Dollars cheaply if no-one is going to spend them in the USA. In the early 1980s US unemployment was over 10%. By the late 1980s it was around 5%. No jobs created, eh? Ronald Reagan was US President from Jan 1981 to Jan 1989. During that period mean GDP growth was 3.4% per annum. When the Japanese buy US real estate the money goes to the sellers who tend not to just put it under the mattress.… Read more »

Rhoda Klapp
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Rhoda Klapp

So you don’t understand that dollars are internationally accepted?

HJ777
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HJ777

I understand that perfectly. Why do you not understand it is because they are backed by the US and without that they are useless bits of paper?

Yes, you can spend US Dollars outside the USA, but if the USA could get free imports by simply printing Dollars that only people outside the USA would ever use to trade with each other, then why wouldn’t they do that? In fact, they could just issue special ‘Not legal tender in the USA Dollars’ – do you think non-Americans would accept them?