The Personal Computing Industry Center (Research Group) decided to take a look inside an iPod to determine where its 451 internal parts are from … according to them 85% of the most valuable parts are from Asia or the U.S. No real big shocker there but it does raise an interesting issue about how the balance of trade as totaled by the government. Since the iPod’s final assembly is from China, does the government actually measure the value only added by China or is China attributed the entire wholesale cost of @$144 USD? And then of course, is the measure of the cost of living and labored factored in? Going by a straight conversion, $144 USD is approximately 1150 Yuan which is just above the “average” GNP per person in China today – well, all 1 billion+ but how granular is our government measuring the trade balance and flow?

The most expensive component according to the study is @$73 for the Toshiba HDD – except that the HDD is manufactured in China – so again, who is credited with the $73 in value? While I’m not an expert in hard drives, I think it’s safe to presume there are patents and further components from the US in there so unlike the early days of trading fruit for lumber, it’s not to easy to measure the real trade deficit or the balance of trade these days. Perhaps we need to be a little more careful in jumping to conclusions when numbers are announced.

It’s also difficult to really measure cost of living – some items like cars are pretty much priced at the world market price, a typical Toyota pretty much converts to $18-$25k USD or about 200,000 Yuan but eating food in most parts of China is incredibly cheap – even in Beijing, I was at a banquet that was overflowing with every kind of meats and seafood for about 17 people that came to about 1,200 Yuan (and no tipping in China!) – there’s no way you can even feed 17 people in the US for about $130 dollars, not even at McDonald’s so how do you really measure the real cost of goods?

Study available as a PDF here.

The NY Times take on the matter.