Originally posted by Gun Boat
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An inaccurate blue jeans example.
Item One
Production price: $5
No-brand: $0
Total FOB price: $5
Item Two
Production price: $5
Brand value A: $5
Total FOB price: $10
Item Three
Production price: $5
Brand value B: $25
Total FOB price: $30
Item One adds $5 to the Philippines' exports to China. Item Two adds $10 and the Item Three, $30.
But, half the value of Item Two, and 83% of the value of Item Three are in things that originate elsewhere.
The total brand value added in the Philippines is sewing a patch on the back.
However, the $25 value added to Item Three does not show up as an American export to China. [ADD: or to the Philippines.]
The IMF is working on a value-added definition of global trade, but it isn't ready yet. The iPhone example that has been around for about 10 years should illustrate the concept well enough to understand that a Trump-level understanding of trade might include "look the other way" and "time to take off the training wheels" doesn't cut it.
But, serious traders know better.
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