I’ve been a stranger in these here parts recently but only because my beat—international trade and logistics—is busier than ever. International activity waits for no great recession. But, given all the talk of China and global currency wars recently, I can’t resist pointing out this speech by Pascal Lamy, Director General of the WTO. The gist of it is the trade statistics which policy makers use to make decisions are outdated. Here’s a particularly relevant section:
For instance, every time an iPod is imported to the United States, the totality of its declared customs value (150 dollars) is ascribed as if it were an import from China, contributing a bit more to the trade imbalance between the two countries. But if we look at the national origin of the added value incorporated in the final product, we note that a significant share corresponds to reimportation by the US, and the rest to the bilateral balance with Japan or Korea which should be allocated according to their contribution to that added value. In fact, according to American researchers, less than 10 of the 150 dollars actually come from China, and all the rest is just re exportation. In the circumstances, a re evaluation of the yuan — a topic which is very much in vogue these days — would only have a modest impact on the sales price of the final product and would probably not restore the competitiveness of competing products manufactured elsewhere.
Similarly, the statistical bias created by attributing the full commercial value to the last country of origin can pervert the political debate on the origin of the imbalances and lead to misguided, and hence counter-productive, decisions. Reverting to the symbolic case of the bilateral deficit between China and the United States, a series of estimates based on true domestic content cuts the deficit by half, if not more.
This impression is confirmed by other figures, if we accept to “debilateralize” them: if we look at the US trade deficit with Asia rather than its bilateral deficit with China, we note a remarkable stability over the past 25 years at something like 2 to 3 per cent of the United States’ GDP.
The bottom line is the U.S. has for 25 years had a consistent trade deficit with Asia; this is masked by a perceived large trade deficit with China. That is not to say we should not be taking this action or that tactic with China or any other nation. Your humble correspondent is not smart enough to write policy prescriptions here. But, I do know we can’t make the right decisions without better data.
I view trade statistics as at a place where baseball statistics were 25 years ago, primitive and often counter-productive. We need a Bill James for trade.