Faulty Trade Statistics Exaggerate And Double US Trade Deficit With China

From The Wall Street Journal article,"Tech Supply Chain Exposes Limits of Trade Metrics" by Andrew Batson:

There's a growing belief that the practice of assuming every product shipped from one country is entirely produced by that country no longer reflects the complex reality of global commerce.

"What we call 'Made in China' is indeed assembled in China, but what makes up the commercial value of the product comes from the numerous countries that preceded its assembly in China in the global value chain," Pascal Lamy, director-general of the World Trade Organization, said in a speech in October. "The concept of country of origin for manufactured goods has gradually become obsolete."

Mr. Lamy said that if trade statistics were adjusted to reflect the actual value contributed to a product by different countries, the size of the U.S. trade deficit with China—$226.88 billion, according to U.S. figures—would be cut in half. That means, he argued, that political tensions over trade deficits are probably larger than they should be.

"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 counterproductive, decisions," Mr. Lamy said in his speech to the French Senate in Paris.

Read more here.

Manufacturers That Ship Further Domestic Distances Export More

From the research paper, "EXPORTS, BORDERS, DISTANCE, AND PLANT SIZE" by Thomas J. Holmes, University of Minnesota, Federal Reserve Bank of Minneapolis, and NBER and John J. Stevens, Board of Governors of the Federal Reserve System:

The fact that large manufacturing plants export relatively more than small plants has been at the foundation of much work in the international trade literature. We examine this fact using Census micro data on plant shipments from the Commodity Flow Survey. We show the fact is not entirely an international trade phenomenon; part of it can be accounted for by the effect of distance, distinct from any border effect. Export destinations tend to be further than domestic destinations, and large plants tend to ship further distances even to domestic locations, as compared with small plants. We develop an extension of the Melitz (2003) model and use it to set up an analysis with model interpretations of ratios between large plant and small plant shipments that can be calculated with the data. We obtain a decomposition of the overall ratio into a term that varies with distance, holding fixed the border, and a term that varies with the border, holding fixed the distance. The distance term accounts for more than half of the overall difference.

Free download of the Holmes and Stevens paper is available here.