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Old 12-21-2018, 09:26 PM
 
2,788 posts, read 1,139,131 times
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"But Trump and Bernie told me we had a trade deficit!" Yeah, that's because they neglect to understand basic math and finance. So here is a quick and dirty technical analysis that proves they're wrong.

Trade deficit statistics exclude export of services and gains from intellectual property

The most widely cited trade deficit statistics refer only to the trade of physical goods. Of course that makes the US look bad and countries like China look good, it's too expensive to manufacture cheap goods here. But, the US has numerous firms like Google and Uber, which export services. Services, along with royalties and license fees, are excluded from most "deficit" statistics. If they were included, the US would have a trade surplus. This is 2018, not 1918, we need to stop only counting goods.

Trade deficit statistics use the value of the final good, not the value added by each country

This is a little more complex. Basically, when an iPhone is shipped from China to the US, the entire value of the phone is counted against the US. Yet, if you look at the value of components from countries like Taiwan and South Korea, China adds very little value in the supply chain. However, because they are the point of final assembly, the entire value of the finished good counts towards China's trade surplus in goods. Basically, their position in the supply chain is artificially inflating their statistics. Switching to a value added approach would decrease the US trade deficit in goods with countries like China and Vietnam.

It's become fashionable to bash free trade these days, so I thought I could add some clarity to the debate.
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Old 12-22-2018, 03:00 AM
 
38,202 posts, read 14,924,927 times
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Thanks for the explanation.

So including services as well as goods, what was our trade balance last year with Canada, Mexico, China, etc.?

Where can we find this info.?
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Old 12-22-2018, 04:43 AM
 
Location: Trieste
916 posts, read 821,381 times
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Then also GDP should be calculated differenty, leaving out those sectors that don't produce anything but just extract value from labour and things, like financial sector or the legal one...
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Old 12-22-2018, 05:00 AM
 
26,694 posts, read 9,079,188 times
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Oh....yeah...…….b/c you say so.
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Old 12-22-2018, 05:02 AM
 
Location: Great Britain
11,639 posts, read 3,985,051 times
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The US has less of a decifit if you include services, but does not have a trade surplus.

However given that the US is the worlds largest consumer nation, it is going to import a lot of goods that can be made cheaply abroad and the deficit only forms a small part of the US Economy.

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Old 12-22-2018, 05:52 AM
 
16,784 posts, read 9,115,884 times
Reputation: 6800
Quote:
Originally Posted by Drewjdeg View Post
"But Trump and Bernie told me we had a trade deficit!" Yeah, that's because they neglect to understand basic math and finance. So here is a quick and dirty technical analysis that proves they're wrong.

Trade deficit statistics exclude export of services and gains from intellectual property

The most widely cited trade deficit statistics refer only to the trade of physical goods. Of course that makes the US look bad and countries like China look good, it's too expensive to manufacture cheap goods here. But, the US has numerous firms like Google and Uber, which export services. Services, along with royalties and license fees, are excluded from most "deficit" statistics. If they were included, the US would have a trade surplus. This is 2018, not 1918, we need to stop only counting goods.

Trade deficit statistics use the value of the final good, not the value added by each country

This is a little more complex. Basically, when an iPhone is shipped from China to the US, the entire value of the phone is counted against the US. Yet, if you look at the value of components from countries like Taiwan and South Korea, China adds very little value in the supply chain. However, because they are the point of final assembly, the entire value of the finished good counts towards China's trade surplus in goods. Basically, their position in the supply chain is artificially inflating their statistics. Switching to a value added approach would decrease the US trade deficit in goods with countries like China and Vietnam.

It's become fashionable to bash free trade these days, so I thought I could add some clarity to the debate.
You are confused. I corrected another poster on this same point about a year ago.

We have a net Trade Surplus on SERVICES... However, it is significantly smaller than our net Trade Deficit on GOODS.


Quote:
The U.S. monthly international trade deficit increased in October 2018 according to the U.S. Bureau of Economic Analysis and the U.S. Census Bureau. The deficit increased from $54.6 billion in September (revised) to $55.5 billion in October, as exports decreased and imports increased. The previously published September deficit was $54.0 billion. The goods deficit increased $0.9 billion in October to $78.1 billion. The services surplus decreased $0.1 billion in October to $22.6 billion.
https://www.bea.gov/data/intl-trade-...s-and-services



Quote:
The U.S. has a trade deficit in goods and services with the rest of the world. That is, the value of its imports exceeds the value of its exports. In 2016, the U.S. trade deficit with the rest of the world was $416.7 billion.1

However, this deficit has been driven entirely by a trade deficit in goods. The U.S. is actually a net exporter of services and has experienced a sharp increase in the surplus of trade services since the 2000s, despite a mild decrease after 2014.

Indeed, between 2000 and 2016, the trade surplus in services in the U.S. increased by 145 percent in real terms, as seen in the figure below.
https://www.stlouisfed.org/on-the-ec...goods-services



I hope you find these links informative.
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Old 12-22-2018, 06:32 AM
 
23,136 posts, read 12,300,165 times
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We went through all of this last year.

Point being -- if you argue that the economy is being doing gang busters under Trump -- then obviously the trade deficit in goods isn't such a deal breaker for Americans.

Trump created chaos in international markets with the USA gaining little traction....so far.
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Old 12-22-2018, 09:13 AM
 
Location: Los Angeles
3,010 posts, read 1,645,209 times
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Quote:
Originally Posted by michiganmoon View Post

We have a net Trade Surplus on SERVICES... However, it is significantly smaller than our net Trade Deficit on GOODS..
And it hardly matters either way as the "trade deficit" doesn't detract from economic growth.

In the simpleton world view of Trump, trade is a zero sum game. But it is clearly not.

GDP is the value of everything produced in the country in a year. The formula says:

GDP = C + I + G + (X-M).

C is consumption; I is investment; G is government expenditure and (X-M) is exports minus imports.

Many people mistakenly think that an increase in imports (which also means an increase in the trade deficit) lowers GDP. This misperception comes from a shallow understanding of the formula.

Imported goods all end up as either C, I, or G because either consumers or the government are consuming them or the imported good is something like a big piece of machinery that ends up in a factory, thereby qualifying as investment (I). Thus, exactly offsetting the negative effect of a new import through the M term is a positive addition to one of C, I, or G.

There is room to debate the impacts of trade on affected parties. While increased trade makes the country richer thanks to the advantages of specialization, some people lose their jobs and may have difficulty in obtaining another job or one that is as good. The US has failed to provide sufficient transitional support to those impacted by trade (e.g., education/training or even UBI).

In the aggregate we are better off.
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Old 12-22-2018, 09:36 AM
 
3,578 posts, read 3,072,868 times
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Quote:
Originally Posted by Brave New World View Post
However given that the US is the worlds largest consumer nation, it is going to import a lot of goods that can be made cheaply abroad and the deficit only forms a small part of the US Economy.
We are able to consume untold boatloads of foreign made products because the US is able to create money out of free electrons in the air to pay for the imports. When Zimbabwe and Venezuela tried that tactic, their currencies collapsed as will ours sometime in the future.
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Old 12-22-2018, 09:47 AM
 
Location: Kansas City, MISSOURI
9,013 posts, read 2,736,967 times
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Quote:
Originally Posted by Wells5 View Post
We are able to consume untold boatloads of foreign made products because the US is able to create money out of free electrons in the air to pay for the imports. When Zimbabwe and Venezuela tried that tactic, their currencies collapsed as will ours sometime in the future.
The US - and just about every other nation on the planet - have been doing that since at least the early 70's. If doing so automatically led to hyperinflation, the US and every other nation that creates currency in the same way, would have experienced hyperinflation a long time ago by now.
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