Monday Quick Hits

It's been a while since I last cleared the decks, so these headlines will go back a couple weeks:

• Former Chair of President Clinton's Council of Economic Advisers Laura D'Andrea Tyson systematically and correctly explains why China's currency policies should not be the focus of this week's US-China Strategic & Economic Dialogue.  (Although it all sounds awfully familiar, if you ask me.)

• AEI's Phil Levy explains the absurdity of the AFL-CIO's opposition to the US-Colombia FTA.

• Unlike most other countries, the United States isn't really interested in Chinese investment.

• Undaunted, Chinese investors are still trying to give us money and jobs, and, fortunately for us, they are occasionally successful.

• The Economist looks at the effect of trade on carbon emissions.

• The US Steel Industry is doing really well these days. (Somebody should tell steel-loving protectionist Reps. Visclosky and Murphy.)

• All of China's currency meddling is pushing the Chinese government to increase the nominal value of its currency.  (Shocking, I know.)

• World Bank study: China will become less trade-dependent over the next decade. (Good writeup of the study here.)

• Chinese study: China's exports will inevitably slow, while its imports will surge. 

• China's one-child policy is creating some serious economic pressures.

• The US-Korea FTA had a pretty ridiculous setback in Korea's National Assembly.  Unfortunately for US exporters, the National Assembly seamlessly approved the EU-Korea FTA a few days later.  (Tick tock tick tock, President Obama.)

• Art Carden explains why the iPad isn't bad for the US economy (and yes, that is apparently a necessary economics lesson for some in Congress).

• US inches closer to allowing Mexican trucks to travel on American roads; retaliatory tariffs on $1.2 worth of US exports remain in place until that actually happens.

• Heritage: The "Age of America" will only end if we let it.

• Steve Horwitz on the pernicious fallacy of the "fixed jobs pie."

That should keep y'all busy for a while. 

UK to US: Your Mercantilist Trade Policy Is Bollocks

I stumbled across a recent blog entry by British Trade Policy Adviser Patrick Thomas that lauds recent US efforts to expand trade but, in typical British fashion, politely explains why the UK's new trade policies are far better (emphasis mine, silly UK spelling his):

[I]t is encouraging that here in Washington, policymakers are talking seriously about engaging with the world through trade. After a year in which trade policy did not feature prominently, President Obama used his State of the Union Address to announce an ambitious plan to double US exports in five years. His Commerce Secretary, Gary Locke, claims that the plan would also support two million jobs in the United States.

Expanding trade is a way to boost economic growth and create jobs, and one that I recommended in my last blog. And in fact, the UK has a comprehensive strategy called 'New Industries, New Jobs', which sees an important role for exports as a driver of growth. What's interesting about the strategy is that it emphasises that exports are only one piece of the puzzle. It recognises that the UK cannot efficiently produce everything by itself. What's key is preparing workers for the high-paying jobs in the industries of tomorrow. To pursue this agenda, it is necessary to recognise that both inward and outward trade flows figure in greater prosperity.

Indeed, modern trade theory tells us that imports are just as important as exports...

The UK has long embraced open trade as a policy, which has played a key role in making Britain a wealthier, more dynamic and more diverse society. So let's promote exports, but let's not forget the benefits of imports as well....

The loud *thud* sound you hear is me falling our of my chair.  Thomas even cited the iPod as an example of how nations benefit from, and thus should embrace, specialization and modern global supply chains.  Good for him.  And great for the UK for adopting a commonsense, 21st century trade policy and (again, politely) calling attention to the asininity of American mercantilism.

If only the White House were listening.

Explaining the iPad's "Stunning" Price

After months of intense nerd-blog speculation, Apple's Steve Jobs today unveiled his company's latest gadget, the iPad:

Steve Jobs took the stage Wednesday to sell the world on one of his biggest gambles since returning to Apple Inc. nearly 15 years ago: a multimedia tablet-style computer called the iPad.

The 9.7-inch touch-screen iPad, which will let users play games, check email, and read books, presents a major challenge to the media, publishing and wireless industries. For Mr. Jobs, it is an attempt to convince consumers they need yet another gadget—one between their mobile phones and laptop computers.

The iPad is basically an iPhone with a bigger, badder HD screen and e-reader capability, but other than its (admittedly high) "cool factor," the gadget wasn't received as that revolutionary.

Well, that's until Jobs unveiled the ridiculously low price:

Yes, Apple's iPad is revolutionary–but mainly because it's cheap.

By offering the tablet computer for as low as $499, Apple has found a way to meet demand for low-priced laptops without a radical price cut on its Mac line. Yet its cheaper computer not only has all the utilitarian functions of a laptop, such as word processing and email, but enhanced entertainment capabilities as well. And it can run iPhone mobile applications.

The highest priced iPad will be only about $800, and that's pretty amazing.  How amazing, you ask?  Well, according to one tech investment website, the iPad's price announcement caused Apple's stock to stage a serious midday turnaround:

Strangely, during the course of the much-anticipated event, Apple’s stock went down, as observed by many. And then, Apple finally got around to talking about pricing.

Chief executive Steve Jobs took the stage, and wowed the crowd (and the world) by saying that the starting price for the iPad was a stunning $499.

Guess what happened next?

At the time of this writing, the stock spiked +3.61.

We wouldn’t be surprised to see it hit an all-time high today.

Jobs' price announcement happened around 2:20p EST, and look what happened immediately after that:

Pretty cool, huh?  Now, how do you think that Apple got the iPad's base price to be about half of its cheapest Mac laptop?  Well, assuming the iPad's anything like its little cousin the iPod, the answer is simple: free trade.  As Dan Ikenson and I discussed in our 2009 study (PDF):

A 2007 study published by the University of California–Irvine sought to determine “who captures value in a global innovation system” by disaggregating the components contained in an Apple iPod and determining the companies and countries involved in manufacturing a unit in China. The authors found that the components were produced in the United States, Japan, Singapore, Taiwan, Korea, and China by companies headquartered in the United States, Japan, Taiwan, and Korea. The total cost of producing the iPod (components plus labor) was estimated to be about $144. Most of the profits on the constituent components accrue to Japanese companies, who produce the most important and most expensive parts. Two U.S. and some other foreign components’ producers all capture small shares of the value. But the lion’s share of value accrues to Apple since iPods retail for $299 and the cost of production is $144 (at the time this article was written)....

Without access to assembly operations in lower-cost countries, the mass production and proliferation of iPods and similar devices likely would not have been possible. Instead of $299, iPods would cost perhaps $500 or more if they had to be produced entirely in the United States. At that price point, it is unlikely that sales of iPods would ever have been as successful as they have been, and the need for all of those American jobs in engineering, logistics, transportation, advertising, web design, and retailing might never have materialized.

(This awesome video by ReasonTV makes a similar - yet bikini-clad - argument.)

Now, a full "teardown" of the iPad isn't available yet (of course) and won't be for a while, but based on the limited information that I could find, it appears that Apple's iPad emerged from much the same global sourcing and development strategy as the ubiquitous iPod.  Taiwanese manufacturers produced the iPad's batteries, display panels and other guts (note: not a technical term).  A US semiconductor design firm, PA Semi (purchased by Apple in 2008) designed the iPad's revolutionary A4 processor, and had it manufactured (or "fabbed," as the techies say) in either Korea or Texas (nobody's quite sure of that yet).  Korean manufacturers are also rumored to have produced a few other component parts, and all of them were assembled in China.

So again we see the same Apple recipe: (i) research, development, design, marketing and some manufacturing in the United States; (ii) component production in Taiwan and other foreign countries; (iii) and final assembly in China.

The result?  A hyper-competitively priced product that's destined to excite consumers and further enrich Apple, its American employees, and, as today's stock boost makes quite clear, its many happy shareholders.