Chinese iPod Datapoint of the Day

From Robert Koopman, Zhi Wang, and Shang-Jin Wei:

In trade statistics, the Chinese export value for a unit of a 30GB video model in 2006 was about $150. However, Linden, Kraemer, and Dedrick (2007) estimated the value added attributable to producers in China at only $4.

I can’t find the paper they cite. But their bigger conclusion is worth repeating:

Our best estimate suggests that the share of domestic content in China’s exports is about 50%, which is much lower than most other countries. This implies that a given exchange rate appreciation is likely to have a smaller effect on China’s trade surplus than for other countries.

In other words, the next time you hear a politician’s call for China to let its currency appreciate more quickly is a bit like the same politician calling for offshore drilling to reduce oil prices. The mechanism works in theory, but in practice the effects are likely to be a lot smaller than the politician would have you believe.

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