Are Trade Stats the Best Measure of Success? – Part 2

Wednesday, February 14, 2007 20:08
Posted in category The Big Picture

a few weeks ago, I posted a theory that the current trade statistics are not well suited for the current global economy in Are Trade Stats the Best Measure of Success?.

Yesterday, I found out that I am not the only one questioning this.

Professor Gary Gereffi of Duke University, and Director of the Center on Globalization, recently released a statement questioning whether the basis of trade statistics as well.

two of the most important quotes I can pull from the article are:

“Data on our trade deficit with China is deceptive and often misused”

and

“The China trade deficit really reflects the state of the global economy: China is the world’s factory and the U.S. is its supermarket”

The first quote is one that is in line with my post, and the second is one that I have often tried to explain and articulate using the principles of supply chain management.

Looking at China’s trade stats, the majority of the trade surplus that China has with the U.S. and parts of E.U. is wiped out by the deficits it has with many countries from Africa and South East Asia.

Take that a step further, the profit that China runs as a whole (its trade gap) is simply the revenue (trade surplus with U.S. and E.U.) less the cost of goods sold (trade deficit with S.E. Asia, Africa, etc).

In addition to the above, there needs to be a way to recalculate trade stats to take into account the sales that  Motorola, Coke, 3M, and hundreds of other American companies who who are manufacturing and selling into China.  Personally, I believe that this could be the singled largest flaw in the system, and that be adding back in all those sales of American branded products in China, the picture would look quite different.

Gereffi is also of the mind that there are better things to focus on than the RMB, and says

“Pressing China to let the yuan appreciate even if successful, would contribute only slightly to an already steady U.S. economy”

Gereffi wraps up by essentially saying that the China problem is only exacerbated by American consumers, and that those workers are essentially buying themselves out of a job.

Gereffi has some interesting thoughts, and I am looking forward to seeing what research or publications he may be working on related to the skewed trade stats.

To read the full press release go here

Thoughts?  comments?

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3 Responses to “Are Trade Stats the Best Measure of Success? – Part 2”

  1. University Update says:

    February 14th, 2007 at 10:01 pm

    Are Trade Stats the Best Measure of Success? – Part 2…

  2. China Law Blog says:

    February 14th, 2007 at 11:12 pm

    I have been trying to get a handle on these stats for some time without success. Here’s my question. Motorola makes $100 million in phones in China and sells them to the US. That raises the US trade deficiit by $100 million. Is there anything on the other side for Motorola’s profits or for the Americans it sends to China to oversee the factory or for the people back home who are paid to oversee the factory?

  3. rbrubaker says:

    February 14th, 2007 at 11:56 pm

    CLB is in the house!

    Hi Dan.

    correct on the numbers in tradition sense. however, not only does it add to the deficit. It takes away from the other side as well.. so there is really a 200million SUD trade anomaly.

    I am not 100% on your question, but I will say that there are obvious benefits coming back to America for the scenario you mentioned.

    1) Motorola is still paying taxes in America based on their profits… which are only higher from reduced COGS in China. However, that in itself is not recorded in the trade stats (part of larger issue I am trying to understand myself)

    Also, while I am not a tax professional, I am sure that the benefit from MOT China is less than if MOT U.S. were exporting to China.

    2) America is also directly benefiting financially from those expats here overseeing operations in TEDA in that they are still paying personal income taxes back in the States (U.S. is the only country taxing its people abroad).

    unlike option 1, I think U.S. gets better deal from this as the expats are not using the same amount of public funds (i.e. they are not on the roads, kids are not in U.S. system, etc), yet are paying in just they same

    3) To your third point, I do not think that Americans overseeing China operations from home base add much benefit on the macro side for U.S.. Obviously they provide benefit to Motorola, but not sure how that translates in any quantifiable way to a benefit that can be tracked.

    If I missed the mark let me know. I am still working to put together some model whereby I could actually provide some measurable proof that the theory is sound.

    Happy new year

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