America`s global trade deficit may not be as bad as government statistics say it is, and American businesses may be doing a lot better in the international arena than they are being given credit for, according to a recent study by the National Research Council.
While politicians and economists often decry the decline of American
”competitiveness” in the global marketplace and wring their hands over a ballooning trade imbalance with nations like Japan, they may be basing their concerns on inaccurate data.
The reason for the perception gap, the Research Council study points out, is that current trade figures focus on cross-border trade without taking into consideration the amount of trade that transcends national borders.
For example, when such things as intracompany trade are factored into the U.S. government trade figures, the study estimates that the difference in what America bought from and sold to foreign nations in 1987 was $64 billion-not the $148 billion tallied by the government for that year. (1987 figures were used in the study because they were the most current available when the council began its research in 1989).
”The numbers don`t tell the whole story, and at times they tell the wrong story of the U.S. trade position,” said Anne Y. Kester, the study director for the Research Council project.
According to Kester and the 13 other council members who produced the study, several important fundamentals are obscured by the trade data released in Washington.
One poorly acknowledged fact is the rise in trade between corporations and their own foreign affiliates. The study points out that in 1987 more than 25 percent of U.S. imports and exports were a result of ”intracompany”
activities.
Those ”intracompany” activities might include a multinational corporation manufacturing components in one country and shipping them to an overseas affiliate for assembly.
A related development, the study said, is that products no longer can be simply described ”Made in the U.S.A.” or ”Made in Taiwan.” Many goods, such as automobiles and computers, contain components from many different countries.
U.S. trade performance is now charted largely by what is called the
”balance-of-payments system, which tracks the movement of goods and services across national boundaries,” the report said.
But because of the increasing complexity of the global marketplace, gauging trade simply by looking at imports and exports is ”inadequate for analyzing new economic issues arising from the emerging international economic order,” the study said.
Most important, the study continued, the current system does not capture the sales and purchases of goods and services by foreign affiliates of U.S. firms abroad and U.S. affiliates of foreign firms in the United States.
”Both from a competitiveness point of view and a jobs point of view, the trade data (as now compiled) do not tell business leaders and policymakers everything they need to know,” said Robert E. Baldwin, Hilldale professor of economics at the University of Wisconsin at Madison and one of the study panel members.
Baldwin added that the current system of reporting trade data does not take into account jobs created by the activities of foreign companies in the U.S., and jobs lost from the activities of U.S. companies overseas.
The study urges the government to develop a ”supplemental framework”
for measuring U.S. international performance that tracks transactions by the nationality of a firm`s majority owners, not by the country in which the firm is located.
Baldwin added that such a framework would offer a better look at the nation`s international competitiveness and would also provide insight into how jobs are gained or lost in the United States due to foreign investment here and U.S. investment abroad.
Using such a framework, the study estimated that in 1987 there was $1.303 trillion in U.S. purchases from foreigners and $1.239 trillion in U.S. sales to foreigners-a $64 billion difference.
That figure paints a much healthier picture of U.S. international performance than that portrayed by the U.S. trade balance figure, the study said. That figure showed in 1987 the U.S. imported $484 billion worth of goods and services and exported $336 billion worth for a deficit of $148 billion.
