The Sydney Morning Herald
By Geoffrey Garrett
The beat goes on about America's massive trade deficit with China, China's mountain of accumulated greenbacks, and its unwillingness to let its currency rise against the staggering US dollar.
But the headlines about the world's biggest and most unbalanced bilateral economic relationship obscure what is really going on in US-China economic relations.
Companies such as Apple with its ubiquitous i-devices and China's BYD, hoping that its mass-market electric car becomes just as iconic, are the leading edge of the brave new world of global production and distribution networks. But they are happy for the old world of trade and currencies to dominate the media coverage.
The US-China trade deficit will probably set another world record this year and Chinese holdings of US Treasury bills will be $US200 billion greater than they were two years ago - even though the global financial crisis was supposed to end the imbalances problem by making China consume more and the US save more.
These imbalances are no doubt an enormous political problem. Americans complain that unfair Chinese trade costs them millions of manufacturing jobs. Beijing is spooked by the prospect of a hot money asset bubble. The G20 thinks US-China-led global imbalances threaten a sustainable recovery.
But the world economy is way ahead of the politics. Enter Apple's iPhone and BYD's E6 electric car.
The trade statistics show that last year more than 11 million iPhones were "made in China" and shipped to the US at a total value of just over $US2 billion. There were about $US100 million in American parts in these iPhones. So iPhones added about $US1.9 billion to the official US trade deficit with China.
But research by the Asian Development Bank uncovers the economic reality written on the back of every iPhone, "designed in California, assembled in China". It says components from Germany, Japan and Korea make up about two-thirds of the $US200 wholesale price of an iPhone. Chinese assembly of them is worth only about $US6 per iPhone, less than half the cost of the American parts.
As a result iPhones were a net export of about $US50 million from the US to China, not the $US2 billion deficit in the trade statistics. Germany, Japan and Korea were net exporters to China. And none of this takes into account the 50 per cent or so profit Apple made on iPhone retail sales.
If Americans want to complain about the evils of iPhone globalisation, they should be worrying about why the disk drives, memory and screens come from Germany, Japan and Korea rather than the US.
In fact, iPhones are a perfect example of where China no longer wants to be in the global economy. For the past 25 years, China has been a low-cost assembler of products like Apple's. This has helped lift hundreds of millions of Chinese out of poverty.
Now Chinese citizens in coastal mega cities, such as Shanghai and Shenzhen, earn too much and want better working conditions than Apple assembly jobs. Cheap assembly jobs are moving to countries such as Vietnam. Protests against working conditions in Chinese factories are rising.
This is why China is trying to position itself as a global greentech leader. BYD, "build your dream", offers a window into the transformation that is taking place in the Chinese economy.
BYD started out life assembling mobile phone batteries for Sanyo and Sony. By hook or by crook, it became a world leader in making the batteries itself, cornering about half of the global market. Now BYD is pouring its phone battery profits into much bigger game - batteries that are big enough to power the world's first mass-market fully electric car.
The US is BYD's first target market for the E6, through its new Los Angeles headquarters for marketing and distribution. The E6 will sell in the US for about $US40,000, more expensive than the hybrid Prius but about half the cost of a Tesla, the Silicon Valley electric sports car that competes for attention with Porsches rather than the Prius.
BYD E6 electric car sales in the US will be tiny next year. Americans may demand more creature comforts than BYD offers. But the fact that a Chinese company is pioneering what could be the must-have consumer durable of the next decade is extraordinary.
Rather than fretting about low-tech Chinese assembly of goods often designed in America, the US should be worrying about mass Chinese production of high-tech electric cars to get ahead in the coming green race.
Geoffrey Garrett is chief executive of the US Studies Centre at the University of Sydney.