CNBC has an article arguing that the way the US trade deficit with China is quite misleading, particularly as to the ultimate source of the deficit, using the iPhone as an example:
Some $70 billion of the U.S. trade deficit with China [out of $375 billion] is from shipments of cellphones. But that $70 billion is not an accurate measure of the value China added to the cellphones it shipped to the U.S.
That's because the accounting used in the "official" trade statistics hasn't kept up with the growth of global supply chains, which source parts and raw materials from multiple countries to make a single product.
"About two-thirds of world trade now is involved in value chains that cross borders during the production process," said David Dollar, a senior fellow at the John L. Thornton China Center, in a blog post.
Each country that adds a link in the chain also adds a little value to the final product. But those intermediate contributions are rolled up into the final export value that tallied when the product reaches its final destination. As a result, much of that $70 billion U.S.-China cellphone trade deficit really comes from other U.S. trade partners, such as South Korea, Japan and Singapore.
Of the $1,000 retail price, about $370 represents the cost of making each phone, including parts and assembly costs, according to an analysis by IHS Markit. The most expensive part, the display, comes from Samsung Electronics in South Korea and represents about $110 of the final price of the phone.
Another $44.45, for memory chips, goes to Japan's Toshiba and South Korea's SK Hynix. Other suppliers, from Singapore to Switzerland, provide parts and components that are assembled by a contract manufacturer in China. But the value Chinese workers add by putting those parts together represents only between 3 and 6 percent of the retail price of the phone, according to the IHS Markit analysis.
When the assembled phone is shipped to Apple and its distributors in the U.S., though, the entire $370 cost of making it — including parts — is rolled into the "export value" and becomes part of China's total trade deficit with the U.S., even though much of the value was added by suppliers in other countries. [...]
That also means any tariff on Chinese shipments of iPhones to the U.S. would also hurt the countries caught in the middle of that supply chain, as well as the American consumers who would pay more for the phone.
Is this analysis correct, i.e. are the (mostly non-Chinese) parts really counted as Chinese exports? If so, then is the conclusion (of the article) that the received way trade deficits are accounted for is nowadays obsolete? Do (most) other economists agree with this?
A bit more searching found that there's a more academic version of this notion called "trade in value-added". It's covered, for instance, in chapter 3 of a WTO-published book. They note something similar to the CNBC's conclusion that:
Global imbalances: accounting for trade in value-added (specifically accounting for trade in intermediate parts and components) and taking into account “trade in tasks” does not change the overall trade balance of a country with the rest of the world – it redistributes the surpluses and deficits across partner countries. When bilateral trade balances are measured in gross terms, the deficit with final goods producers (or the surplus of exporters of final products) is exaggerated because it incorporates the value of foreign inputs. The underlying imbalance is in fact with the countries that supplied inputs to the final producer. As pressure for rebalancing increases in the context of persistent deficits, there is a risk of protectionist responses that target countries at the end of global value chains on the basis of an inaccurate perception of the origin of trade imbalances.
So I guess this makes the notion more mainstream than one journalist's article. But is it widely (enough) accepted as a superior approach to trade relations/deficits? (There's no Wikipedia page for it that I could find, although OECD has one.)