Question
Instead of "Made in Country X" shouldn't we start listing where parts are made instead?
Answer
Basically, yes. Your instincts are correct that our current accounting systems for understanding global trade are way off. Old models no longer make sense. But the situation is more complex than just part-level accounting. You need value-addition accounting in international trade to properly represent what's going on.
Pankaj Ghemawat explores this in World 3.0 (excellent book btw), and here are two relevant notes from the book about this topic (can't recall if this is my note or whether I copied a quote verbatim)
Solving this "roundtripping" problem in accounting of global trade is horrendously hard. You can trace the pattern for a particular good or service, but doing macroeconomic measures is much harder.
World trade statistics has basically been garbage since about the 1960s, when container shipping got so reliable that lean global supply chains became possible. This in turn caused a gradual shift from shipping of complete products and raw materials to shipping of industrial intermediates, since the low cost and high reliability of shipping allowed sourcing and manufacturing to be optimally distributed. So the same component can in fact cross the same borders multiple times (country A builds a part that goes to country B for incorporation into a sub-assembly, and then returns to country A for incorporation into a final assembly...)
A deeper insight is that share of revenue has low correlation to where and how value addition is done. Apple's huge share of the retail revenue from an iPod reflects primarily return on IP assets, not a cost-plus on variable cost input. In a way that's Apple's weakness. It is more of an idea than a company in the sense of physical manufacturing. It is vulnerable to disruption from its own supply chain where IP and other protection mechanisms are weak.
Pankaj Ghemawat explores this in World 3.0 (excellent book btw), and here are two relevant notes from the book about this topic (can't recall if this is my note or whether I copied a quote verbatim)
- Of the $299 price of an iPod, $163 goes to Apple and only a few dollars go to China
- Foreign content accounts for 50% of China’s exports, and 25% - 30% of global exports (i.e., circulation in intermediate goods is poorly modeled by commonly cited statistics, which indicate a need for value-added accounting to correct for inflated deficits (example, $150 per iPod). Often this is about 3x due to such “roundtripping.” Deflating appropriately, you get a trade to GDP ratio of more like 20%.
Solving this "roundtripping" problem in accounting of global trade is horrendously hard. You can trace the pattern for a particular good or service, but doing macroeconomic measures is much harder.
World trade statistics has basically been garbage since about the 1960s, when container shipping got so reliable that lean global supply chains became possible. This in turn caused a gradual shift from shipping of complete products and raw materials to shipping of industrial intermediates, since the low cost and high reliability of shipping allowed sourcing and manufacturing to be optimally distributed. So the same component can in fact cross the same borders multiple times (country A builds a part that goes to country B for incorporation into a sub-assembly, and then returns to country A for incorporation into a final assembly...)
A deeper insight is that share of revenue has low correlation to where and how value addition is done. Apple's huge share of the retail revenue from an iPod reflects primarily return on IP assets, not a cost-plus on variable cost input. In a way that's Apple's weakness. It is more of an idea than a company in the sense of physical manufacturing. It is vulnerable to disruption from its own supply chain where IP and other protection mechanisms are weak.