Where value is added in the Apple iPad value chain

The Economist has an article pointing out that U.S. trade statistics focus on the final value of products imported into the United States, not the overseas value added in those products. The figure above apportions the costs of an Apple iPad, noting that the labor accounts for less than the profits to Apple, and that South Korea and Taiwan gain as much or more employment in its production as China. I think this was brought to public attention by my former professor, Ken Kraemer  and his colleagues at the University of California, Irvine.

A second article in the same edition points out that outsourcing R&D from the United States to Asia (where it can be done cheaper) is not necessarily bad for the U.S. economy if the entrepreneurial expertise in the United States can be used to capture remunerative portions of the value chain. That is perhaps true, but of course R&D capacity grows with use and there is no shortage of entrepreneurial talent in Asia. Indeed, experience has suggested that R&D units that start with simple development efforts may work up to important research producing disruptive innovations.

Moreover, if you want jobs in the United States industry better reserve some portion of the value chain that creates those jobs. If it is only profits feeding investor income that is brought to the United States, we will have richer rich people and lots of people involved in non-tradable services.