Monday, December 25, 2006

Trade Deficit = Merchandise Surplus?

So far this year, the U.S. will sell about $1.2 trillion of our goods to the rest of the world, and we have purchased about $2.0 trillion of goods from the rest of the world. In other words, as a result of international trade, the U.S. will have a NET INFLOW OF $800 billion worth of merchandise INTO the U.S.

Although we call this a "trade deficit," it could just as accurately be called a "merchandise surplus," because we end up with more of other countries' production than they have of ours. That is, if you look at trade as "who ends up with the most stuff?" the answer is clearly the U.S., even though we call it a "trade deficit."

If we measured trade in terms of consumption, instead of production, we clearly have a "merchandise surplus" with the rest of the world.

Actually, because imports and exports are measured as part of the GDP statistics by the BEA, based on PRODUCTION of output, we focus on WHO produces the goods, and and not who CONSUMES the GOODS. Measuring trade that way, we often lose sight of the fact that a "trade deficit" is actually "net merchandise inflow" and a "merchandise surplus."

We end up with a net inflow of stuff from around the world every year, about $800 billion this year, but call it a trade "deficit"?

1 Comments:

At 12/26/2006 10:45 AM, Anonymous Anonymous said...

I like the term merchandise surplus. Individuals and companies in the U.S. are not willing to make trades that decrease value. Trade creates value. Trade is a positive-sum activity (win-win). Therefore, "Merchandise Surplus" of $800,000,000,000.00 is a more appropriate description, reflecting the value of trade.
-M. Harris

 

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