Whenever I discuss international trade in a principles course, I like to put the name of a particular product on the board that is “made in” another country. We then discuss where components of that product are made. Location and the complexity of production often result in using an automobile example, but there are certainly other goods where this analysis can be enlightening. I use these examples because the complexity of production and the flow of goods often tell a different story that trade balances and “made in” labels.
With that being said, it was encouraging to see Edmund Conway writing on this very topic in the UK Telegraph:
In my column this morning on manufacturing (Shock news – Britain still makes things) I didn’t have space to mention one other important misconception about manufacturing: that just because something is “made in China” or somewhere else in the emerging world doesn’t necessarily mean that the money from its construction goes to that place alone. This helps explain why, in broad terms, a developed economy does not need a trade surplus (or even a balance) in order to survive.
Let’s take the iPod (or the iPhone for that matter) as an example. On the back of it it says “Designed by Apple, Made in China” or words to that effect. What this tells you is who designed it and who put it together. What it doesn’t reveal is the complex economic web that the product represents – that the cash you pay for one of them is scattered to many different countries around the world.
Read the whole thing.