U.S.

WTO: For Trade Imbalances, Use Value Added For a More Accurate Picture

by Fran Smith on November 24, 2010 · 2 comments

in Economy, International, Trade

The World Trade Organization’s annual report released today is well worth reading, not only for the data on recent trade flows, economic and unemployment trends, and trade financing but also for the cautions against protectionism and the analyses of trade policy.

Policymakers should particularly take note of the discussion on trade imbalances and why current ways of measuring trade flows don’t take account of value added, that is, currently the full value of a product’s imported value is attributed to the exporting country, even when that country has had a very small part in its total production.  Apple’s iPad – produced through a global supply chain – was a prominent example in the media of the distortions that current measurement of trade flows produces.

Here’s the WTO’s discussion (on p. 17):

A factor that is of particular relevance when situating trade and trade policies in the context of current tensions over trade imbalances is that trade flow statistics are recorded universally in gross terms;  the full value of an imported product is attributed to the country that exports it, even if that country contributes only a small proportion of the product’s value-added.  This has long been recognized in trade policy terms, for example when imposing rules of origin requirements on products that are eligible for preferential tariff treatment.  Even so, it can send misleading signals to trade policymakers.  With many manufacturing processes today broken down into separate parts and spread across different countries before the finished product is assembled for export in one of them, attributing the full value of the product to the country from which it is exported to its final consumer destination will give an exaggerated idea of the real importance of trade with that country.

The report notes that when a value-added approach is used to calculate bilateral trade flows between China and the U.S., for example, it would result in “a reduction of the [US] deficit by more than 40%.”

Here are the calculations (p. 19):

US-China trade balance, 2008: Traditional and value added measurement

(Billion dollars)

ItemValue
USA exports to China (traditional statistics)71
USA exports to China (in value added terms)60
USA imports from China (traditional statistics)  *356
USA imports from China (in value added terms)224
Trade balance (traditional statistics )-285
Trade balance (in value added terms)  **-165

* Adjusted for China processing trade.

** While individual bilateral balances are affected by the value-added measurement, the total trade balance of each country -as measured by the balance of payments- remains the same.

Source: A. Maurer and Ch. Degain ”Globalization and trade flows: what you see is not what you get!”,  WTO Staff Working Paper ERSD-2010-12, June 2010.

That is certainly a significant fact that policymakers should have beaten into their heads before they are allowed to discuss U.S. trade imbalances with China.

Will Trade Be a Winner in the New Congress?

by Fran Smith on November 8, 2010

in Economy, International, Trade

In its Sunday editorial, The Washington Post takes an upbeat post-election look at the prospects for stalled trade agreements, especially the pending U.S.-Korea Free Trade Agreement. With the Republicans running the House, the article notes that some key House committee positions — chairman of Ways and Means and chairman of its trade subcommittee — will likely be held by legislators who call themselves free-traders.  There is a note of caution, however, about the role of the new Tea Party members, who may not be as supportive of international trade.  But, the Post notes, former U.S. Trade Representative under President Bush, Rob Portman, handily won the Senate seat in Ohio, which may mean there’s less opposition to trade than commonly thought.

In Seoul, South Korea, today top U.S. and Korean trade negotiators are trying to resolve some differences relating to autos and beef so the negotiations will be complete before President Obama and South Korean President Lee Myung-bak meet Thursday at a summit before the G-20 meeting.  The trade pact would be the largest economic agreement since NAFTA and would substantially reduce both tariff and non-tariff barriers on both sides.  Other countries have moved ahead in signing trade agreements with South Korea, most notably the European Union, and the U.S. would be at a considerable advantage if it backs away from its own Korea agreement.

The Washington Post editorial also points out not only the economic but the important geopolitical ties that a U.S.-Korea FTA and other pending FTAs would further:

At stake is not only economic growth, but also the strategic balance in Asia. As China rises, this agreement would help keep the peace by binding two long-time democratic allies closer. Similar arguments apply to stalled agreements with two U.S. allies in Latin America, Colombia and Panama. The finalization and swift congressional approval of all three pacts should be among Mr. Obama’s highest priorities for 2011.

Hear, hear.

CEI Podcast – October 7, 2010: Trade, Jobs, and Korea

by Ryan Young on October 7, 2010

in Economy, Podcast, Trade

Have a listen here.

CEI Adjunct Fellow Fran Smith talks about the EU-Korea free-trade agreement that takes effect next year, and why the U.S.-Korea FTA stalled, to the economy’s detriment. Fran also talks about NAFTA’s impact on jobs, and why imports are a good thing.

Will talent flee to the City?

by Fran Smith on March 20, 2009

in Bailout Watch, Economy, International, Personal Liberty, Politics as Usual, Sanctimony

A different take on possible effects of lawmakers’ rabble-rousing on TARP bonuses. Jeffrey Goldfarb at breakingviews.com says that driving out talented financial executives in the U.S. may be a boon for foreign-owned banks in the U.S. in getting new talent, but most especially for London and its global financial powerhouse, the City. Sarbanes-Oxley already caused financial institutions to flee New York for London. The 90 percent tax rate on TARP bonuses might provide a new impetus for savvy executives to relocate.

Still, with London house prices down, and no “Keep Out” signs for foreigners – think TARP-related Visa restrictions in the U.S. – many of those who can choose their continents may soon be thinking the City is something of a safe haven with better job opportunities, as long as the UK doesn’t wind up succumbing to mob rule too.

Maybe London could adapt the Statue of Liberty’s quotation to: “Give me your tired, your rich, your huddled masses yearning to breathe free.”

Remaining ‘Swiss’ No Longer An Option

by Gary Howard on March 6, 2009 · 1 comment

in Economy, International, Personal Liberty

In a running theme, I again cover the topic of the U.S. government’s heavy-handed dealings with swiss bank UBS.  A nod to my colleague John Berlau, whose letter in today’s Financial Times gives a nod to former ambassador Faith Whittlesey and her commentary in FT expressing concern over the Obama administration demanding the names of 52,000 Americans who do business with UBS.  As I stated in previous posts on this issue, these actions by federal authorities are setting a bad precedent for the privacy of American citizens.  As usual, I am left at the end my post with questions: When the government can demand to know every detail of your financial life, what is there to stop it from exerting control over it?

Federally Sanctioned Propaganda Machine

by Gary Howard on December 11, 2008 · 1 comment

in Bailout Watch, Economy, Intellectual Property, Nanny State, Odds & Ends, Privacy, Regulation, Tech & Telecom

 

Apple's 1984 "Big Brother" commercial.

Apple's 1984 "Big Brother" ad

An article over at Ad Age brings up an angle on the whole auto industry bailout probably not considered much before.  The fact that a yet-to-be-appointed “car czar” will have control over a multibillion dollar advertising budget for the big three.  Under the guise of “oversight,” this would effectively “Create World’s Most Powerful Marketing Exec[utive].”  

The draft rescue plan for Detroit sent to the White House by Congress yesterday calls for the appointment of a “car czar” who will oversee the Big Three automakers’ expenses over $25 million — which, by extension, would include media buys. Based on Advertising Age’s estimates of spending by General Motors Corp., Chrysler and Ford Motor Co., that would give the as-yet-unnamed car czar control over some $7.3 billion in marketing spending in the U.S. alone.

The most disturbing thoughts about this (particularly to those concerned with liberty) are provoked here: 

The car czar would wield a budget more than double those of AT&T, Verizon, Unilever and Johnson & Johnson, which round out the nation’s top five marketing spenders, and give the car czar more clout with media and agencies than such famed names in marketing as Walmart Chief Marketing Officer Stephen Quinn and Anheuser-Busch VP-Marketing Dave Peacock.

…If the bailout goes through, agencies that work for the Big Three will essentially be toiling on a government account, with all the associated red tape and strictures that involves.

So there you have it.  We should all be concerned about this for many reasons.  As mentioned, the large ad budget that comes with a czar-controlled U.S. auto industry will allow a government bureaucrat to wield unbalanced and unchecked influence over not only who gets ad contracts, but what media outlets get ad money. The czar can simply refuse to give business to an advertising agency who works for a foreign competitor of the big three (or a “non-compliant” corporation), or refuse to pay money to show ads on outlets that they deem “unfriendly” to the administration or its mission.   This will be an unequivocal disaster.  We have already seen the lengths to which administrations (and pre-administrations) have gone to influence and/or silence media they do not like.  What kind of power plays do you think are possible when the administration’s appointee controls a major source of media outlets’ ad revenue? Whatever it ends up being, it won’t be pretty.