Inconsistencies in Reporting U.S. Trade Data? Is the BEA Following the Cash, or the Goods and Assets?
The BEA released data today on the "U.S. Net International Investment Position at Yearend 2010" with these highlights:
- The U.S. net international investment position at yearend 2010 was -$2,471.0 billion, as the value of foreign investments in the United States ($22,786 billion) continued to exceed the value of U.S. investments abroad ($20,315 billion).
- There was a -$74.6 billion change in the U.S. net investment position from yearend 2009 to yearend 2010 that primarily reflected net foreign acquisitions of financial assets in the United States that exceeded net U.S. acquisitions of financial assets abroad.
- Foreign acquisitions of financial assets in the United States were $1,245.7 billion in 2010, up substantially from $335.8 billion in 2009.
- U.S. acquisitions of financial assets abroad were $1,005.2 billion in 2010, up substantially from $139.3 billion in 2009.
1. When U.S. imports (cash out) exceed exports (cash in), it gets reported by the BEA as a "trade deficit" because the accounting logic is based on following the cash, and not the goods. Because the "cash out" for imports is greater than the "cash in" for exports, there is a "net cash outflow" from the U.S. to our trading partners, and we call this a "trade deficit."
2. When the BEA calculates the international investment position, it seems to depart from following the cash, and switches to following the assets. The fact that the value of foreign investments in the United States ($22,786 billion) exceeds the value of U.S. investments abroad ($20,315 billion) means that there has been a net inflow, or capital surplus, into the U.S. of $2,471 billion. And yet the BEA reports this as a negative -$2,471 billion because of the switch from following the cash (+$2,471 billion inflow) to following who ends up with the assets.
Alternatively, if the BEA reported the U.S. net international investment position the way it reports trade data, shouldn't it be reporting a positive $2,471 billion net investment position overall and a positive $74.6 surplus for 2010?
The BEA is apparently reporting the the U.S. currently has both a "trade deficit" and an "international investment" deficit? How can that be?