Edward Conard

Top Ten New York Times Bestselling Author

  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
Upside of Inequality Oxford Unintended Consequences

AI Summary. China's post-pandemic balance-of-payments methodology reports a substantially smaller surplus than its customs trade data, on the rationale that contract manufacturers making goods for foreign firms with offshore intellectual property record inflated export prices. Chinese export prices for smartphones of $300–400 per phone sit near estimated manufacturing costs and well below global wholesale prices, undercutting that rationale.

Brad Setser Council on Foreign Relations
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.@Brad_Setser argues that after a 2022 change in China’s balance of payments methodology, China’s official numbers substantially underreport its surplus. For 2024, he estimates a $800B surplus vs. China’s official figure of $400B.

Does China's export price data support its smaller reported trade surplus?

Core argument: Chinese export prices for made-in-China smartphones to the U.S., the EU and Japan all fall in the $300–400 per phone range, clearly below the global wholesale or retail price.

After the pandemic, China adopted a new methodology for estimating its BoP surplus that substantially reduces the surplus reported in the balance of payments relative to the underlying customs surplus. China claimed that contract manufacturers producing in China for foreign companies with offshore IP (e.g., Apple) were reporting an inflated exports number in the customs exports data; the number in the customs data was supposedly the global wholesale price for a product like the iPhone, not the actual price that the contract manufacturer received from a firm like Apple. But for mobile phones—by far the largest single category of Chinese exports produced onshore by contract manufacturers, China’s story wasn’t in China’s own data. The export price for Chinese-made smartphones to the U.S., the EU and Japan are all in the range of $300-400 per phone. A recent report found that iPhone 15s generally cost over $450 to make, and iPhone 14s were generally closer to $400. U.S. smartphone imports from China are almost entirely Apple phones. And $400 is clearly well below the global wholesale or retail price. What seems to be a technical debate over how Hon Hai’s made-in-China smartphones enter the Chinese customs and BoP data turns out to have rather large consequences.

Takeaways by Macro Roundup® AI

  1. Chinese export prices for made-in-China smartphones to the U.S., the EU and Japan all fall in the $300–400 per phone range, clearly below the global wholesale or retail price.
  2. China's post-pandemic balance of payments methodology substantially reduces its reported surplus relative to the underlying customs surplus, on the claim that contract manufacturers for foreign firms with offshore IP reported inflated export values.
  3. A recent report found that iPhone 15s generally cost over $450 to make and iPhone 14s closer to $400, while U.S. smartphone imports from China are almost entirely Apple phones.

Related Articles:

  • China’s Record Manufacturing Surplus — China's manufacturing trade surplus has reached about 2% of world GDP, exceeding the peak surpluses of export powerhouses like Japan and Germany, and shows no signs of shrinking as policy continues to emphasize advanced manufacturing capacity. The main offsetting manufactured-goods deficit is in the United States rather than commodity exporters.
  • China’s Stunning 2024 Export Growth — Chinese export volumes are up 13% year-over-year while import volumes are up only 2%, a gap that with exports at about 20% of GDP implies a net exports contribution to Chinese growth of close to 2% of GDP. Falling Chinese export prices mean export volumes are growing much faster than the dollar value of exports.
  • The Dangerous Myth of Deglobalization — China's manufacturing surplus rose by about 1 percentage point of global GDP over a four-year span and is far larger than those of Germany and Japan. China's $800bn goods trade surplus depends on the large U.S. trade deficit, which is still indirectly financed by China through the large offshore dollar stockpiles held by Chinese exporters.
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