U.S. President Donald Trump often tweets from his iPhone about pressuring China to address its $375 billion trade surplus with the United States. But a closer look at the Apple smartphone reveals how the headline figure is distorted.

The big trade imbalance – at the heart of a potential trade war, with Trump expected to impose tariffs on Chinese imports this week – exists in large part because of electrical goods and tech, the biggest U.S. import item from China.

Apple Inc’s iPhone, however, illustrates how a big portion of that imbalance is due to imports of American-branded products – many of which use global suppliers for parts but are put together in China and shipped around the world.

Take a look at the iPhone X. IHS Markit estimates its components cost a total of $370.25. Of that, $110 goes to Samsung Electronics in South Korea for supplying displays. Another $44.45 goes to Japan’s Toshiba Corp and South Korea’s SK Hynix for memory chips.

Other suppliers from Taiwan, the United States and Europe also take their portion, while assembly, done by contract manufacturers in China like Foxconn, represents only an estimated 3 to 6 percent of the manufacturing cost.

Current trade statistics, however, count most of the manufacturing cost in China’s export numbers, which has prompted global bodies like the World Trade Organization to consider alternative calculations that include where value is added.

The impact on export data of just the iPhone could be major.

Apple shipped 61 million iPhones to the United States last year, data from researchers Counterpoint and IHS Markit show, spending $258 on average to make each iPhone 7 and 7 Plus.

Using a rough calculation that implies the iPhone 7 series added $15.7 billion to the U.S. trade deficit with China last year, about 4.4 percent of the total. That’s also about 22 percent of the $70 billion in cell phones and household goods the U.S. imported from China.

“With an iPhone, where China is just the final assembler, most of the value [contributed by China] is just the labor rather than the components themselves,” said John Wu, an economic analyst with a U.S.-based think tank, the Information & Innovation Foundation.

‘Collateral damage’

Louis Kuijs, head of Asia economics research at Oxford Economics, notes that U.S. companies’ using global supply chains to manufacture products in China means other economies would be caught in the crossfire of a trade war.

“That is an important reason why U.S.-China trade friction will cause ‘collateral damage,’ especially in other Asian economies,” he said, adding that in value added terms, the U.S. trade deficit with China was only $239 billion last year, 36 percent lower than the headline number.

For its part, Apple has responded to Trump’s concerns with a pledge to bring some suppliers to the United States. It said in January it planned to pay $55 billion to U.S. suppliers this year.

Over the last decade, Apple shipped 373 million iPhones, worth $101 billion by manufacturing value, in the United States, according to researcher StrategyAnalytics.

The iPhone’s contribution to U.S. trade deficits is almost certain to have grown sharply alongside higher retail prices and shipments.

But the manufacturing value does not include the intellectual property value Apple adds through engineering and design work done in its headquarters in Cupertino, California, as well as margins taken by distributors.

The iPhone X has a manufacturing cost of about $400, an $800 wholesale cost, and a $1,200 retail unsubsidized cost, according to analysts.

Siri, Apple’s “digital assistant,” reflects the challenge of knowing exactly where the value of an iPhone comes from – even if it’s put together in China. If users ask Siri where she is from, the response is: “Like it says on the box… I was designed by Apple in California.”

The closely intertwined manufacturing ecosystem has led to warnings that a trade war would be painful for all sides.

Forty-five U.S. trade associations representing some of the largest U.S. companies urged the president on Sunday not to impose tariffs on China, warning it would be “particularly harmful” to the U.S. economy and consumers.

Retailers and shoemakers, including Wal-Mart Inc and Nike Inc, also sounded the alarm on Monday over concerns the plans would result in higher consumer prices.

A 10 percent tariff levied on Chinese electronics imports would slow the growth of U.S. output by $163 billion over the next 10 years, and a 25 percent tariff would slow output by $332 billion, according to the Information Technology & Innovation Foundation.

Kuijs wrote that both sides would likely show restraint.

All-out economic war, he added, “would cause major economic damage globally.”
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Toy company executive Isaac Larian says he and other investors have pledged a total of $200 million in financing and hope to raise four times that amount in crowdfunding in order to bid for up to 400 of the Toys R Us stores being liquidated in bankruptcy.

The unsolicited bid still faces many hurdles, including finding other deep-pocked investors and getting a bankruptcy judge to agree to it. But this is the first public plan to keep the cherished toy brand in existence in the United States.

Such a long-shot move would also greatly benefit Larian’s primary business. He’s CEO of Bratz doll-maker MGA Entertainment, which relies on Toys R Us for nearly 1 in every 5 sales.

​Good for the industry

Larian says he and the other investors, which he declined to name, believe salvaging part of the Toys R Us business will be good for the toy industry, customers and workers. They’re interested in more than half the 735 U.S. stores Toys R Us plans to liquidate, and want to be able to use the valuable brand name.

And they’re hoping the outpouring of affectionate nostalgia when Toys R Us announced its plans — #SaveToysRUs has been a trend on social media — translates into pledges toward their $1 billion goal.

Toys R Us sought court approval last week to liquidate its remaining U.S. stores, threatening the jobs of about 30,000 employees and spelling the end for a chain known to generations of children and parents for its sprawling stores, sing-along jingle and Geoffrey the giraffe mascot.

The store has an iconic place in American culture, said Larian. “We can’t just sit back and just let it disappear.” Larian, who is a billionaire, is using his own money, not MGA funds, for the bid.

No debt

Why might Larian be successful with a retail chain struggling to stay relevant in the age of Amazon? For one thing, Larian wouldn’t have the massive $5 billion in debt that hampered the current owner of Toys R Us. He also says the toy industry needs a big chain like Toys R Us, where children can touch and feel the toys and toymaker’s can test new products.

The chain’s liquidation will have a “devastating effect” on the toy industry, said Larian, who estimates that 130,000 jobs in the U.S. could be lost when you include layoffs at suppliers and logistic operations. He said a total Toys R Us liquidation could mean MGA would have to lay off workers at an Ohio plant that makes the Little Tikes toy vehicles. That brand accounts for 25 percent of MGA total sales, and Larian says only Toys R Us really had enough room to display the cars. It’s harder to ship such bulky items on Amazon.

The Toys R Us troubles have hurt big toy makers like Mattel and Hasbro, which have been key suppliers to the chain. MGA, based in Van Nuys, California, is the world’s largest privately held toy company. The planned liquidation would have a bigger impact on smaller toy makers that rely more on the chain for sales.
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A little more than 40 hours after leaving Moscow’s Yaroslavsky station, the Vorkuta Express pulled into its terminus after a 2,000-kilometer journey through the taiga forests and tundra of Russia’s far north. The city lies 150 kilometers inside the Arctic Circle, seemingly at the edge of human habitation.

Its monochrome extremes overwhelm the senses: vast Arctic ice fields punctured with the scars of creaking coal mines.

The city is dying. The fall of the Soviet Union left Vorkuta vulnerable to market forces. In the 1990s, eight of the 13 coal mines closed, and two-thirds of the residents have left in the past 30 years. In 2016, a series of explosions in one of the largest mines killed 36 people and dealt another blow to Vorkuta’s future.

Largely cut off from the rest of Russia, 70,000 people remain in the decaying city. Amid the decline, Nadezhda Kozhevnikova is trying to run a clothing store. She said Vorkuta has been forgotten.

​“As far as I understand, we have enough coal reserves for another 50 years. There is demand for coal. So, why are mines not being set up? None are being developed. Nothing is being done,” Kozhevnikova said.

Politics haven’t helped

And yet, few Vorkuta residents voted for change. Seventy-three percent backed President Vladimir Putin’s United Russia Party in an election Sunday that international observers said was neither free nor fair.

As his students practiced on miniaturized drills and machinery, Victor Telnov wasn’t interested in debating democracy. As director of the Vorkuta College of Mining and Economics, he’s teaching the next generation the skills that will be vital to Vorkuta’s survival. He said Russians must put their faith in Putin.

“As a well-known public figure recently said, ‘Do not have any illusions. This time, we do not elect a president, but a commander-in-chief.’ This election is emblematic, for Russia and for the world community. We show how much we are united as Russians.”

​Built by Stalin’s gulag labor

Vorkuta rose from the ice-bound wastelands in the 1930s, built by the forced labor of Josef Stalin’s gulags. Up to 200,000 political prisoners are buried in the permafrost. Gulag prisoners also built the railway, Vorkuta’s only land link with the outside world. The small airport is often closed because of the weather.

Deep beneath the ice, Anatoly Vorobyov and his colleagues mine the same seams of coal that once powered the Soviet Union. He has a short wish list for Putin.

“At the very least, I hope the current standards will be preserved — wage stability, a steady supply of workers who are given everything they need. I mean a social package and all that,” Vorobyov said. “As an improvement, we would certainly like a salary increase. And maybe a new highway to Vorkuta. That would be cool for all the residents.”

A craving for stability, and yet a longing for a faster escape route from this decaying town.

In the 1990s, miners’ wages in Vorkuta went unpaid for 10 months. Memories of that trauma are frozen in the minds of many voters. Life in Vorkuta may seem bleak under Putin’s Russia, but the people here know it could get a lot worse.
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About 150 kilometers inside the Arctic Circle lies the Russian city of Vorkuta, a mining outpost that is rapidly being reclaimed by the elements. Many residents abandoned the city after the fall of the Soviet Union, but 70,000 people remain, largely cut off from the rest of Russia, seemingly trapped in a decaying city. Henry Ridgwell reports on the challenges facing this remote icebound settlement, far beyond the bright lights and billionaire mansions of Moscow.
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U.S. President Donald Trump is expected at any time to fire a salvo directly at China in what could escalate into a full-scale trade war between the world’s two largest economies.

Trade actions against China, partly in response to the theft and improper transfer of American technology to Chinese companies, are expected to be announced by Trump as soon as Thursday.

The White House schedule for Thursday shows Trump signing “a Presidential Memorandum targeting China’s economic aggression” at 12:30 p.m. EDT (1630 UTC).

On the anticipated eve of the measures, U.S. officials spoke to reporters about their monthslong investigation under Section 301 of the Trade Act of 1974 of Beijing’s trade practices.

China has long been considered by many in the international community to have contravened fundamental principles of global trade, despite joining the World Trade Organization in 2001.  

There have been a “number of specific failings by China to live up to its WTO obligations,” said an official of the U.S. Trade Representative in a Wednesday background briefing for reporters.  

The briefing and other comments not for attribution by officials are seen as clear signals the administration, in response to an Aug. 14 memo by Trump, intends to use the Section 301 trade tool.

The last time it was wielded was by the Clinton administration against Japan to pry open that country’s automotive sector.

‘Ripping off’

China has been “ripping off” the United States, Trump has emphasized numerous times in public remarks during which he has harshly criticized his predecessors for not doing anything about it.  

According to published reports, Trump is expected to impose tariffs, valued at tens of billions of dollars, on a number of Chinese products. Sources say that in addition to tariffs, restrictions on Chinese investment in the United States are likely as a response to Beijing using state funds and enterprises under the government’s control to purchase intellectual property here.

Trump in January hit the Chinese-dominated solar panel and cell industry with tariffs. Earlier this month, he launched global tariffs on steel and aluminum (from which Canada and Mexico were quickly given indefinite exemptions), a move China’s commerce ministry said it “strongly opposed.”   

U.S. Trade Representative officials on Wednesday declined to specify what new actions will be taken, but they did not disagree that an announcement is expected as soon as Thursday.

“We’re getting very close,” said a USTR official speaking to reporters on condition of not being named. “The president will have the final say.”

Bracing for an anticipated harsh reaction from China, the official noted, “We recognize the potential gravity of the situation here.”

Depending on the severity of the measures taken by Trump, stock markets in Asia and elsewhere could be roiled, according to market analysts.

Trade groups representing American retail giants, such as Walmart, and tech companies, including Apple, warn that sweeping tariffs would raise prices for consumers in the United States and might not do much to reduce the trade deficit.
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U.S. congressional leaders appeared Wednesday to have reached a deal on a $1.3 trillion spending bill as a budget deadline loomed. 

The bipartisan bill, which would keep the government funded until the end of September, has President Donald Trump’s support, the White House said in a statement.

“The president had a discussion with [House] Speaker [Paul] Ryan and [Senate Majority] Leader [Mitch] McConnell, where they talked about their shared priorities secured in the omnibus spending bill,” White House press secretary Sarah Huckabee Sanders said. 

Deadline late Friday

Negotiators planned to unveil the spending bill later in the day in hopes of passing it before a Friday midnight deadline to avoid a government shutdown.

The bill will give Trump a huge budget increase for the military, including a 2.4 percent pay raise for military personnel.

It also will include a measure strengthening the federal background check system for gun purchases.

WATCH: Federal Budget Explainer

The measure would provide funding for states to comply with the existing National Instant Criminal Background Check System and penalize federal agencies that don’t comply.

It also will provide money to improve school safety. The funds would go toward training school officials and law enforcement officers how to identify signs of potential violence and intervene early, and installing metal detectors and other steps to “harden” schools to prevent violence. 

GOP aides said Trump would win $1.6 billion for a wall and physical barriers along the U.S.-Mexico border. But Trump would be denied a far larger $25 billion request for multiyear funding for the project. 

To the Democrats’ disappointment, the bill offers no protections for so-called Dreamers, undocumented immigrants brought to the United States as children. 

No insurer subsidies

It also won’t provide subsidies to health care insurers who cut costs for low-earning customers. And it won’t provide federal payments to carriers to help them afford to cover their costliest clients.

Both parties touted the $4.6 billion in total funding to fight the nation’s opioid addiction epidemic, and a record $3 billion increase for medical research at the National Institutes of Health.

The House is expected to vote on the bill by Thursday, followed quickly by the Senate, to meet Friday’s midnight deadline.
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The U.S. and the European Union are set to engage in a new round of talks to resolve trade disputes, including those over U.S.-proposed tariffs on steel and aluminum imports.

“We have agreed to launch immediately a process of discussion with President Trump and the Trump administration on trade issues of common concern, including steel and aluminum, with a view to identifying mutually acceptable outcomes as rapidly as possible,” a joint U.S.-E.U. statement said Wednesday.

The announcement was made after talks in Washington between Commerce Secretary Wilbur Ross and E.U. Trade Commissioner Cecilia Malmstroem.

U.S. President Donald Trump’s announced tariffs on aluminum and steel imports are scheduled to take affect later this week. 

Washington already temporarily exempted Canada and Mexico from the tariffs during talks to renegotiate the North American Free Trade Agreement.  

U.S. Trade Representative Robert Lighthizer said in congressional testimony Wednesday the administration is currently discussing tariff exemptions with Argentina, Australia and Brazil.

Lighthizer also told lawmakers he expected a decision soon from Trump on tariffs on imports from China, which Washington accuses of stealing U.S. intellectual property.

The Trump administration’s aggressive actions on trade issues have triggered alarm among legislators in the president’s own Republican Party and among industry groups who say the tariffs exposes the U.S. to higher prices and potential trade wars.

 
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Top officials of the U.S. central bank raised the key interest rate slightly Wednesday, amid strong job gains and moderate economic growth. 

The rate is one-quarter of a percentage point higher, putting it in a range between 1.5 and 1.75 percent. 

Federal Reserve officials said that is still “accommodative,” meaning it is still fairly low, compared to the average rate during the past few decades. Fed officials said they will probably raise interest rates a few more times this year if the economy continues along its current path.

The Federal Reserve tries to manage the economy to maximize employment and keep prices stable. 

The bank slashed interest rates nearly to zero during the financial crisis in 2008 to stimulate economic growth. However, economists say keeping rates too low for too long could push inflation up fast enough to damage the economy. 

While inflation is below the 2 percent rate the Fed thinks is best for the economy, the bank said inflation seems likely to rise a bit.  
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The largest lease sale in American history in the offshore Gulf of Mexico yielded $124.76 million in winning bids Wednesday, a modest response to the Trump administration’s effort to pump up investment in the region.

The Interior Department had offered up more than 77 million acres (31.2 million hectares), an area twice the size of Florida, as part of a broader effort by President Donald Trump’s administration to ramp up U.S. fossil fuels output.

Companies bid on just 1 percent of that acreage, and won those tracts with bids averaging $153 an acre — 35 percent below average winning bids at a similar auction last year, and a fraction of the level paid in the region in 2013 when oil prices were much higher, according to a Reuters review of the data.

The Interior Department’s Bureau of Ocean Energy Management, which administered the auction, characterized the results as robust.

“I think we’re seeing continued consistent investment in the Gulf of Mexico,” BOEM spokesman Mike Celata said in a conference call with reporters.

He said 33 companies, including majors Royal Dutch Shell Plc and Total SA, had placed 159 bids on 148 blocks.

But critics of the administration have called the unusually large lease sale ill-timed. U.S. crude oil and natural gas output is already smashing records thanks to improved drilling technology that has opened up cheaper onshore reservoirs, and Brazil and Mexico are competing for drilling investment in their own deep-water acreage.

“Offering a nearly unrestricted supply in a low demand market with a cut-rate royalty and almost no competition is bad policy and an inexcusable waste of taxpayer resources,” the Center for American Progress, a left-leaning policy think tank, said in a statement.

The United States produces about 1.5 million barrels of oil per day from the Gulf of Mexico, about 15 percent of the national total, according to the Energy Information Administration.

The U.S. government offers Gulf of Mexico leases annually, but usually in smaller regional batches. An auction in March 2017, for example, offered up 48 million acres in the Central Gulf of Mexico planning region.
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