(IYI) The iPhone, Trade, and Reading Between the Lines

David Foster Wallace used to mark certain passages in some of his non-fiction works with an "IYI" tag standing for "If you're interested," which you almost certainly were since he was writing it. But the tag signaled that the topic was not necessarily one people commonly found interesting, he wasn't going to try and sell you on it being interesting and was in many ways tangential to the main point of the piece. I'm going to shamelessly crib that device from him, marking this post as strictly IYI, feel free to skip this one, with the weekend approaching there will be more pictures of funny things and drunken stories coming soon enough.

The art of reading between the lines is useful anywhere but particularly in Japan, where so little of what matters is ever entrusted to words - Eamonn Fingleton

That's the lead to an awesome piece called Translating Japan by Eamonn Fingleton, on the Japanese Government's communication after the earthquake and Japan's continued role as a crucial hub in the global economic system. Fingleton is a Tokyo resident of 25 years and longtime writer on economics and finance. It's a bit long but I highly recommend it.

With so much left unsaid, Fingleton emphasizes the importance of watching how people act. I've already experienced the tendency towards omission and vagueness in my apartment hunt. What are my options? How much will this cost? Are there any additional fees? Is this negotiable? What documents do I need? are questions that are rarely met with a straight answer, and the answers have a tendency to change from day to day and based on who's asking. In the US this kind of vagueness would be a clear sign of duplicity, but in Japan I'm not so sure. There's a pretty good chance from the Real Estate Agent's perspective she's communicating everything as clear as possible to us, we're just not reading between the lines.

Fingleton's main observation is that the earthquake, the resulting disruption to Japanese industry and it's repercussions to global manufacturing chains reminded everyone just how crucial a cog in the wheel Japan is when all the focus is on China these days. Ford reportedly stopped producing black cars in the US due to shortage of chemicals produced in Japan. Apple faced shortages of key components for iPads and iPhones.

I was initially directed to Fingleton's website by the Atlantic's James Fallows, another former longtime Japan and China expat, who reposted this graphic from a December WSJ article on where the real value in production of the iPhone comes from.

The iPhone is assembled in China, so every iPhone exported to the US shows up in our trade imbalance stats with them, but really virtually all of the actual value from the export flows to other countries who produce the more valuable components of the iPhone which are exported to China. Japanese manufacturing is responsible for 10 times more of the value of the iPhone then Chinese manufacturing, and 5 times more then those components made in the US. This means that with respect to the iPhone production line the US is a net exporter to China.

Fingleton's thesis is that the Japanese Government and business leaders have intentionally overstated the degree of economic dysfunction in Japan over the past twenty years to keep political pressure off while they have quietly become more and more important players in key export markets. Since the Japan real estate crash in 1990, and the commencement of Japan's "Lost Decade" exports have risen five fold and the yen has appreciated 63% against the dollar. Fingleton acknowledges that there are many difficult issues facing Japan, but confidently predicts the country will quickly rebound economically after the 3/11 disaster.