The United States and China both know tech innovation has a higher payoff than acting as the world's factory for assembling electronics. Few cases illustrate that lesson better than Apple's iPhone and iPad devices — designed in America but made in Chinese factories.
That may not seem surprising when comparing the salaries of Apple's designers and engineers in California to those of Foxconn's factory workers in China. But the U.S. National Science Foundation's (NSF) annual science and engineering report for 2012 highlights just how huge a gap exists in economic value gained from sales of Apple's iPad.
U.S. profits from sales of the $499 iPad may be more than 20 times greater than the cost of Chinese labor for assembling the device, according to a 2011 study cited by the NSF. The U.S. share of the value pie for iPhone sales is even bigger — more than 30 times greater than China's labor costs.
The iPad value difference translates into a $162 value for the U.S. compared with an $8 value for China. The estimated value of each country's share comes from researchers at the University of California, Berkeley, and Syracuse University in New York.
[INFOGRAPHIC: iPads 'Assembled in China' Mostly Benefit the US]
China's share is so small because of the low wages for the low-skilled factory workers who put all the components of an electronic device together. Other countries benefited much more by contributing critical electronic components — South Korea gained an estimated $34 in profit for each iPad sale because of parts made by tech giant Samsung.
Knowing the distribution of value in making gadgets such as iPads and iPhones helps better understand the real gaps in economic trade, wealth and innovation. For instance, crediting China with the entire value of exporting Apple's iPhone could make the U.S. trade deficit seem bigger than it really is.
A more accurate evaluation would drop the value of China's iPhone exports from an estimated $2 billion to less than $100 million in 2009, according to a 2010 working paper by the Asian Development Bank Institute. The rest of the $1.9 billion would go to countries such as South Korea, Japan, Germany and others that supplied the smartphone's electronic components.
Such figures not only highlight the economic benefits of originating innovative devices such as the iPhone and "Jesus" tablet, but also suggest that the U.S. need not mourn the loss of the electronics assembly business. On the other hand, countries such as China may get a bigger piece of the value pie for electronics as they shift away from factory assembly to attempted homegrown innovation.
As if to drive home the point, China's news media recently showcased a homegrown "Red Pad" tablet that runs on Google's Android operating system and is targeted at Chinese Communist Party members, according to the Wall Street Journal .
But Chinese netizens reacted with skepticism and sarcastic remarks suggesting that taxpayers would have to pick up the tab for officials buying the "Red Pad" — a device costing more than double the price of Apple's iPad. The Wall Street Journal noted that the original Chinese news reports have since disappeared.
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