Trade ‘imbalances’ are misleading

Alexan­dro Jara, the Deputy Direc­tor-Gen­er­al of WTO

[R]elying on con­ven­tion­al trade sta­tis­tics gives a dis­tort­ed pic­ture of trade imbal­ances between coun­tries. As we saw when look­ing at the Chi­nese con­tent of the iPad, what counts is not the imbal­ances as mea­sured by gross val­ues of exports and imports, but how much val­ued added is embed­ded in these flows.

The WTO esti­mate, based on IDE-Jetro data, esti­mates that 80 per cent of the val­ue of the goods export­ed by the US had a domes­tic con­tent. The com­pa­ra­ble fig­ure was 77 per cent in the case of Japan, 56 per cent for Korea. It was about 50 per cent for Malaysia and Chi­nese Taipei, mean­ing that half the val­ue export­ed by these coun­tries orig­i­nat­ed from oth­er coun­tries.

Using con­ven­tion­al trade sta­tis­tics would over­es­ti­mate the US bilat­er­al deficit vis-à-vis Chi­na by around 30 per cent as com­pared to mea­sur­ing in val­ue added con­tent based on input-out matri­ces. The offi­cial fig­ures for the bilat­er­al deficit would be cut by 50 per cent when the activ­i­ty of export pro­cess­ing zones in Chi­na and Hong Kong, Chi­na, re-exports are ful­ly tak­en into account. By the same token, mea­sured in domes­tic val­ue added con­tent, the bilat­er­al deficit of the US with Korea or Japan, the main providers of elec­tron­ic parts in our iPad exam­ple, would increase in pro­por­tion to the reduc­tion of the US — Chi­na deficit. ” Extract from Address to the World Input Out­put Data­base con­fer­ence, May 2010 [empha­sis added]

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