In international trade, the real competition is between business corporations, not between countries. I would guess that U.S. President Donald Trump would disagree with such a statement, so would many politicians and government officials who make promises that their leadership could make their countries great again by winning in international trade. They are wrong.
Of course, countries compete in international relations in terms of power and influence. In extremis, they compete with military forces. However, international trade is, as the saying goes, a whole different ball game.
In today’s world, companies sell to customers and other companies anywhere in the world as long as it is profitable to do so. They also source from suppliers anywhere in the world as long as they believe that it is the most cost-effective and reliable source of supply that would improve their efficiency and competitiveness. Companies are therefore constantly competing as well as collaborating across national borders in the global economy. The result is what we now call the global supply chains, a development that has revolutionized how we produce, innovate, market, and deliver to customers. The global supply chains are not a creature of the government, nor that of any specific country. Instead, they evolved organically from the ground up, always self-organizing, always expanding around the world through relentless competition and collaboration between profit-seeking companies operating across national borders.
Businesses today compete to gain a profitable place in the constantly evolving global supply chains. And this is true even for a business who sells only to domestic customers. The chances are some of its suppliers, or suppliers of suppliers, would be foreign. And some foreign companies will be seeking opportunities to export to its market to compete with it directly, or supplying its domestic competitors to compete against it indirectly. So, unless a company is located in a country that cuts itself off completely from international trade (and by the way, no country does that today, not even North Korea), there is no escaping from competing in the global supply chains.
The fiction of countries competing in international trade begins with equating companies with countries, then further compounded by the way trade statistics are compiled in values of import and export at the country level. When it is reported that country A exports $10 worth of goods to country B, it is automatically assumed that the entire value of $10 is produced domestically in country A, then sold to country B.
What actually happens on the ground could not be more different. Trade is conducted exclusively by companies seeking to make a profit. Take for example Apple’s iconic iPhone, a supposedly Chinese made product. China ships about $2 billion’s worth of iPhones to the U.S. in a year, which, from where Trump sits, is a major contributor to America’s trade deficits with China. So, it’s worth taking a closer look at how an iPhone is manufactured and by whom.
The iPhone is put together by Hon Hai Precision Industry in China, which is better known by its trading name Foxconn, and is actually a company hailed from Taiwan. Hon Hai assembles iPhones in its factories in China with components sourced literally from all over the world. Tapping into the best producers of highly specialized niche components, Hon Hai’s suppliers include household names like Bosch in Germany, Samsung and LG in South Korea, Sony, Sharp, and Toshiba in Japan, and Qualcomm in the U.S. Hon Hai’s suppliers also include many less well known but no less important niche producers like Cirrus Logic, PMC Sierra and Omni Vision in the U.S., NXP in the Netherlands, and Green Point in Singapore. To complicate matters further, some American suppliers to Hon Hai, such as Omni Vision and PMC Sierra, outsource some of their manufacturing to suppliers in other countries. Foxconn itself operates production facilities in Thailand, Malaysia, the Czech Republic, South Korea, Singapore and the Philippines, and many of these facilities could also supply specific components to Hon Hai in China. As a result, according to research by the Lowy Institute, only a small fraction of the value-added of the iPhone when it leaves the factory gate of Hon Hai is captured in China.